Buying Bonds: A Primer

If you needed a lesson in how bonds can benefit your portfolio, you've been getting one since mid-July.

As stock prices fell this summer, Treasury bonds rallied to some of their best levels ever. So if all your assets were in the S&P 500, you lost 10% during the third quarter. But if only half your assets were in the broad stock index and the balance was in a fund that tracks the Merrill Lynch Treasury Master Index, the 5.7% return on that index would have pared your loss for the quarter to 2.1%.

This is not to say you should be 50% in bonds. Your circumstances might not warrant your being too concerned about recent losses. At the same time, there are lots of different kinds of bonds, some of which burned investors while Treasuries were raging. ...