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.
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.