Interest rates cannot go any lower. CD's and treasuries are paying very low rates. Just about anything short term is paying less than 2 percent.
One could buy long and intermediate term bonds right now but as interest rates rise how happy are you going to be holding a 3.5 percent bond when the going rate is 7 percent or more?
Long and intermediate term bond funds are going to fall in value as interest rates rise. Given where rates are now I would have a hard time owning these funds as fund values will fall.
To get more return you may consider these alternatives with a little more risk.
Short term bond funds: In a rising interest rate environment you want to keep your duration on your bonds as short as possible. My recommendations on these funds are as follows:
Janus Short-Term Bond fund symbol JASBX. Year to date from Jan 1 to
PIMCO Low Duration bond symbol PLDDX. Year to date from Jan 1 to
High yield bonds funds. High yield bond funds do well when the economy is doing well or improving. In 2008 these bond funds took a real hit in the credit crunch. Year to date they have done very well. In my opinion these funds should do well over the next few years. I would not expect to see returns that were seen on these funds so far this year but I would expect to see nice gains.
Recommendations in the High Yield sector are:
Artio Global High Income symbol BJBHX. Year to date from Jan 1 to
Janus High Yield fund symbol JAHYX. The year to date from Jan 1 to
These funds have a strong upside potential however you must be able to accept the magnitude of losses seen in 2008.
PIMCO Foreign Bond Fund PFODX. Year to date from Jan 1 to
Another option is an arbitrage fund, the Gabelli ABC fund, fund symbol GABCX. This fund was down 2.63% in 2008. Year to date from Jan 1 to
Also in this class is the Arbitrage Fund Class R. This fund lost 0.64% in 2008. Year to date from Jan 1 to