Exposure to intermediate-term bonds
rose to 11%, or about 36% of the typical bond portfolio, in the expectation that interest rates would remain low.
Shifting the bond allocation to long bonds would increase the risk of such a large loss to 39%, because long-term bonds lose more value than intermediate-term bonds
when interest rates rise.
Most of this went into long- and intermediate-term bonds
This fund holds mainly various short- and intermediate-term bonds
, often backed by insurance company guarantees.
Many advisers generally recommend short- to intermediate-term bonds
or bond funds so the portfolio doesn't sustain too much damage if interest rates rise.
According to a study by Ibbotson Associates, an investor starting in 1972 to withdraw at a rate of 9% a year from a portfolio of 60% large-company stocks and 40% intermediate-term bonds
would have gone broke in 1981.
Remember the basic rule of thumb: if you are going to need the money in the short term (to pay upcoming college tuition, for example), consider investments such as short-term Treasuries, intermediate-term bonds
and cash equivalents like CDs and money market accounts.
For intermediate-term bonds
(typically two-year to 10-year maturities), the interest rate is normally higher than a shorter-term bond and lower than a long-term bond.
The Tedfords' fixed income performance tract record in intermediate-term bonds
-- those maturing in one to 10 years -- was ranked third in the Piper Domestic Intermediate Duration Managed Fixed Income performance evaluation report over the past five years.
For those who are getting ready to retire in a few years, he said a classic allocation is to put 65 percent of your money in stocks, 25 percent in short- to intermediate-term bonds
and the rest in money market funds.
These debt obligations are offered by the same institutions that offer intermediate-term bonds
but have more than 10 years until maturity.
Also look for pre-funded municipals, short- to intermediate-term bonds
backed by Treasury securities.