Those commissions are especially heavy in the case of small purchases. If you do decide to go the fund route, check out Suzane Abboud s column on page 15 for advice on the best strategy in selecting a bond fund. Even people who aren t overly fond of bonds usually advise keeping at least some in your portfolio as a stabilizing influence. Most of us especially older investors should consider keeping at least a fifth of our holdings in bonds. The question is just how much of our portfolios should be devoted to this investment.
Bonds perform best when interest rates are declining.
When interest rates and inflation are stable, bonds can also be a good deal, since they retain their value and deliver predictable income. This year hasn t fit into either scenario, but that may change before the year is out. Some advisers, including McColl, suggest waiting in the short term for rates to climb before buying bonds. If central bankers perform as expected and ratchet up interest rates between now and June, bonds will present extremely tempting values later this year. Bond yields also compare very well with the stock market, which is trading near historical highs.