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Most bonds won't leave investors shaken or stirred

Personal Finance. By Katherine Vogt, amednews staff. Aug. 9, 2004.

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In bonds, many investors trust. But for some, that might be blind faith. Trying to understand the bond market can feel like reading a book with only half of the necessary words. It can leave investors with questions having no simple answers.

But experts say even novice investors might be able to benefit from bonds with a little basic information about what they are and how they work. Knowing the tax consequences and risks of the bond types typically bought by individuals -- government bonds, agency bonds, municipal bonds and corporate bonds -- can help people choose which investment, if any, is right for them.

The bond market is big business. According to the Bond Market Assn., a New York-based trade association, outstanding public and private debt -- underwritten by bonds -- was valued at more than $22.5 trillion in the first quarter of 2004, up from $16.9 trillion in 2000.

Michael Decker, senior vice president of the association, said interest in bonds began to surge after the stock market plummeted because investors were seeking diversity and greater stability in their portfolios.

"What we're hearing is that the stock market crash of a few years ago really was a hard lesson for a lot of people, and I think a lot of them don't want to have a repeat performance," he said.

Walt Woerheide, PhD, a professor of investments and director of the Irwin Graduate School at the American College in Bryn Mawr, Pa., said physicians might be better suited to bond investments later in their careers because, unlike stocks, bonds tend to be more of a wealth preservation vehicle than a growth vehicle.