But if you have lost your taste for them — or have never owned them at all — I still believe that investment-grade bonds are worthwhile for many, if not all, investors. In fact, the higher yields and lower prices in the market today mean that this is an excellent time to buy bonds.
For most people, the easiest way to do this is through a broad low-cost mutual fund or exchange-traded fund. Bonds make sense because, despite their recent problems, they still have traditional virtues.
Two fundamental factors make bonds important, said Paul Olmsted, a senior researcher at Morningstar:their essential function of generating reliable income, and their ability, most of the time, to provide diversification in a broad investment portfolio containing stocks.
“The bond market is self-healing,” he said. The damage wreaked by rising interest rates will be remedied, over time, by those higher rates. If your investment horizon is long, he said, the yields generated by your bond fund will produce higher total returns, more than making up for the losses you may have endured over the past few years.
Robert Pozen, the former president of Fidelity who is now a senior lecturer at the M.I.T. Sloan School of Management, said it made sense at today’s interest rates to hold individual Treasuries or investment-grade corporate bonds of, say, five to 10 years maturity, if you need a safe investment for a specific purpose and period, such as paying for a child’s education or financing your retirement.