Buy Bonds! No, Don't Buy Bonds!

I read an online article yesterday that actually told people that they should buy bonds. Why is this unusual? Because most articles lately have been advising people not to buy bonds. Now who would do that? Do people who write these articles really care about your portfolio or are they just trying to make themselves look good if everything goes according to plan? Let's look at both sides of the argument. First, a little primer on bonds. If you own a bond and interest rates go up, the price of the bond will go down. But the coupon or interest you are receiving on the bond doesn't change. You will continue to get that until the bond matures. Oh and at maturity, you will get back the par value (generally $1000 per bond), so even if the price of your bond drops after you buy it, it will eventually come back to par when the bond matures. Still with me? So why do these writers keep telling people not to buy bonds? They are usually referring to bond funds when they write these articles. Mutual funds made up of bonds instead of stocks. So again, if interest rates rise, the value of the bond fund will go down. So the writers are trying to warn people, possible bond fund investors, that if they buy a bond fund now, and interest rates start to go back up, then you might lose money (on paper) in your bond fund. OK, so why should you buy bonds? The argument for buying bonds is this, bonds are generally considered a safer investment than buying stocks, meaning the probability for loss is generally less when you own bonds than when you own stocks. However, bonds do not have the upside potential that stocks do either. So bonds tend to be best for people who are looking for income, and people who are looking for better returns than one could get from buying CD's or money market instruments, yet do not want the possibility for the big losses that can come with stock ownership as seen in recent years. It boils down to this, if you want safety, don't buy stocks or bonds. Put your money in the bank in an FDIC insured CD or money market account. But if you are looking for interest rates higher than 2%, where are you going to get it? It may be 2 or 3 years before rates go back up and CD's are paying the 5 or 6% interest people want. On the other hand, if you want or need 4-6% interest, you can get it with bond ownership. You make the call.