On Bonds.

A great post regarding bond funds over at the Big Picture.  Everybody should read this link: The Basics of Owning Bonds.

A couple of quotes from the article:

"Buyers of the 10-year Treasury are agreeing to lend Uncle Sam money for a decade and receive a piddling interest payment of 1.5 percent. That is barely above inflation in the depressed environment, where price rises have been modest. It is reasonable to expect higher inflation in the future, but when that will finally hit is anyone’s guess."


"Bond ETFs/Indexes: If you cannot afford a ladder, consider bond index ETFs."


"Bond funds have different risks from bonds: If you buy a quality bond and hold it to maturity, you will get your money back. Sure, a Treasury can move up and down, but held until maturity it will pay back its investment. Not so with all bond funds. If markets go topsy-turvy and a bond fund faces redemptions, they sell what they can, sometimes at a loss. Hence, it is another risk factor that you simply do not have in bonds themselves or bond index ETFs."


"Owning a yield portfolio is a way to obtain higher income but with appreciably more risk. Proceed with caution."


"Anyway go read the whole thing.  I've linked it again here if you don't want to go back to the top of the page."