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What’s the Best Way to Invest in Bonds?

Question: I want to invest in bonds. What’s the best way to go about it? How do yield fluctuations affect prices? What about interest rates?

– Mark Kramer, Santa Fe, N.M.

Answer: You’re not the only bond fan these days. The bond market has had quite a run, but experts like Morningstar bond fund analyst Miriam Sjoblom caution against trying to play the bond market for a quick score, since prices are already quite high and yields are low (they are inversely related). Instead, she says, use bonds as part of an asset-allocation strategy in a long-term portfolio, and look to short- and intermediate-duration bond funds to lessen the interest rate risk (duration measures a bond’s sensitivity to interest rates—the longer the duration, the more sensitive the bond). But again, don’t assume the bond market will play out as it has in the recent past. “That’s a great way to lose money over the long haul,” Sjoblom says.

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