Many people have been content to keep their conservative dollars in money market funds or high-yield savings accounts in recent years. These have been earning roughly 4% annualized with very little risk. The problem is that money market yields fluctuate with Fed policy. Individual bonds, meanwhile, will continue paying a fixed interest rate until their maturity dates. In a rising rate environment, money market funds work well. If rates, however, are destined to decrease, then bonds are the better investment.
It’s important to note that buying and holding individual bonds until maturity (our preference) minimizes interest-rate risk. You don’t get the same level of certainty from bond funds, which can be worth more or less than you paid for them, depending on whether rates rise or fall.
Some have suggested long-term bond yields could continue rising based upon the $37 trillion of U.S. federal debt. Credit rating agency Moody‘s…
