The Rest of the Story

Once the financial markets have stabilized and the mortgage debacle is brought under control, the Fed will have to make up for lost time by significantly raising interest rates in order to control inflation.

If you insist on owning bonds, keep your maturities very short. That will result in low yields, but you'll make up for it when the Fed puts the brakes on and interest rates begin to soar. Your short-term bonds will mature and then you'll have cash to reinvest at higher rates.

Traditional bond ladders and/or CD ladders may give you more current yield now than an all-short bond portfolio, yet still provide opportunity to reinvest at higher rates in the future.

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