Bonds and other fixed-income investments generally aren't exciting, but that's exactly the point. They're supposed to be relatively safe, providing a steady stream of income with less price volatility than stocks.
But be warned: Bond prices do fluctuate, and some relatively sharp swings could be on the horizon. Bond prices generally shift in relation to interest rates and to changing perceptions of the economy. The period since 1980, with a long downturn in interest rates, relatively tame inflation, and a financial crisis that scared people toward safer investments, has been good for bonds.
Bond prices will go down, finance experts say, when perceived economic growth or inflation strengthen enough to push interest rates higher. The trend in interest rates will determine the yield (income payments) on newly issued bonds, of course. But when interest rates change, the prices of existing bonds also shift so that their yields reflect the going rate of interest. When interest rates rise, bond prices fall and hence their yield goes up.
That doesn't mean bonds are riskier than stocks, which fell much harder than bonds during the financial crisis.
Fixed-income investments are many and varied. You can buy broad-based bond mutual funds, or narrower mutual funds that invest only in corporate bonds or only in US government bonds. Funds that invest in municipal bonds (and bonds issued by state governments) are generally exempt from federal taxes – a benefit that’s meaningful for money invested outside of a tax-sheltered retirement account.
US government bonds are considered to have very low risk of default, while many corporate bonds have a higher (albeit small) risk of default.
Some savers prefer bond mutual funds for their simplicity. Others prefer to buy a "ladder" of individual bonds with varying maturity dates. You buy new bonds as older ones mature and the principal is returned.
With either approach, one type of bond to consider as part of the mix is the category called "inflation protected." These, offered by the government, pay interest and shield you from the risk that the value of your principal will be eroded by inflation. One of these options called Treasury Inflation Protected Securities, and another is Series I (that's letter "i") savings bonds.
Check out the “Treasury Direct” program online if you want to buy bonds straight from the federal government.
Mark Sappenfield
Dear Reader,
About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:
“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”
If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.
But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.
The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.
We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”
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