So you want to buy some bonds?

        You might be hearing that you should. Stocks, after all, are still struggling, and you'd rather not be too risky with whatever nest egg you have left after the first bear market in almost 30 years.

        And proper diversification means that you should spread your money among company stocks and fixed income.

        But where the heck do you start? Buying bonds isn't as simple as picking something with a high percentage figure attached.

        “Once people start digging into it, they find it's not as generic as they thought it was,” said Roberta Tucker, director of fixed income investments at Fifth Third Bank.

        Indeed, there are more individual bonds than there are stocks on the market. And bond mutual funds also number in the thousands.

        But as with any kind of investing, where to start depends on what your intentions are.
       

Three types of funds

        If you are looking for a steady income stream, individual bonds might be the way to go, Ms. Tucker said. But investors looking for diversity and safety in an uncertain market — especially in 401(k) or IRA accounts — are probably better off in bond mutual funds.

        There are three main types of bond funds: short term, intermediate term and long term. Choose the kind that best matches the length of time you want to hold the fund.

        In such tax-favored retirement accounts, stay away from municipal bond funds or tax-free bond funds. Not only would buying them in a tax-advantaged account be redundant, but it would likely cost you some return.

        Ms. Tucker also cautions investors to stay away from high-yield bond funds. True, they might have a higher interest rate attached — but that's because there's higher risk.

        High-yield bonds, called “junk bonds” in the 1980s, are those from companies that have a higher risk of defaulting on their debt.

        “This is my personal bias: that if you're going to take that level of risk, why not just buy a stock?” Ms. Tucker said.
       

Differing yields

        Once you've picked out the kind of bond fund you want to buy, take a look at the yields. But be careful — yields can be reported in different ways, Ms. Tucker said.

        She said to compare the funds' seven-day yields, which the SEC requires them to report.

        “These numbers are not the same as ... yield to maturity or current yield,” she said. “You need to understand yield can be quoted in many different ways.”

        Because various yields are calculated differently, comparing the seven-day yield is more trustworthy.

        But choosing a fund with the highest seven-day yield still might not be the best choice. You have to also look at the expense ratio in relation to the yield. Make sure the fund you choose isn't taking away in expenses the money it's earning for you.

        “Do your homework,” Ms. Tucker said. “Make sure you are getting a good return at a reasonable price.”

        Contact Amy Higgins at 768-8373; ahiggins@enquirer.com; or 312 Elm St., Cincinnati, OH 45202. She regrets that she cannot reply to all individual questions.
       

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