In the past few weeks I’ve had a handful of clients ask me whether it was a good time to buy bonds. With the stock market hitting new records over and over again lately, these clients were all considering taking some money out of the stock market, locking in their gains, and putting these funds into bonds.

I explained that “buying bonds” is more complicated than it might seem. I asked them what kind of bonds they were thinking about. Were they interested in:

• Bond funds or individual bonds?
  If bond funds, mutual funds, closed end funds or Exchange Traded Funds (ETFs)?
• If individual bonds, how many years do you want to wait for the bonds to mature? Do you want a portfolio of laddered bonds?
• Corporate bonds or government bonds?
• If corporate bonds, U.S. or international? A-rated, investment grade, or hi-yield bonds (what we used to call junk bonds)?
• If government bonds, U.S. or international? Treasury bonds or municipal bonds?
• If municipal bonds, taxable or tax-free? Investment grade or junk bond grade?

By the time I’m halfway through asking all these questions, my clients are about ready to strangle me. Sorry!

Once we get though all the above, we then need to discuss the inherent risk in bonds today. With interest rates near zero, most likely we’ll see rates rise. Since the value of bonds and interest rates have an inverse relationship, we can expect bond funds to go down when interest rates begin to rise.

If you own individual bonds and can hold until maturity, you’ll be fine. But if you need to cash in the bonds before maturity, rising interest rates will hurt.

If you’re looking to take some of your own chips off the table, or just want to look over your options, give us a call!

Enjoy the weekend…
Peter