So you wake up one Saturday morning and discover, to your horror, that you now have a tattoo of Gen. Andrew Jackson charging up your sternum. What's worse, you have a bond fund, too. Most people get bond funds because, like tattoos, they seem like a good idea at the time. It depends on their purpose in your portfolio. In many cases, you could be just as well served by a money market fund.
Most people invest in bond funds as part of an overall asset-allocation decision.
After all, your most important investment decision often is how much of your portfolio you put in various types of investments. Conservative investors add bonds to their portfolio to smooth out some of the stock market's big bumps. But there's a problem with this theory. It was formulated when a business downturn often meant a period of falling prices. Bonds, which make regular, fixed interest payments, become exceptionally valuable in deflationary periods.