Are Bonds a good buy right now? What if I need income?

Never buy long term bonds for short term income (meaning you need 100% of your principal back in a couple of years).

Long term bonds are subject to interest rate risk, and change values based on changes in interest rates. As interest rates go down, long term bond values increase, and vice versa. The reason for this is that if you buy a new 20 year bond while interest rates are 5%, and rates on new bonds go down to 4%, your bond is more valuable than new bonds. You could attempt to calculate the Net Present Value of the bond by using the current interest rate to discount the future payments and the return of principle, but there will generally be some difference based on where investors expect interests rates to go.

So, if rates are currently 2% (and they are) and you reasonably expect interest rates to increase (which they will), would you buy a long term bond now? (I hope not...) What if you need 100% of your principal in a year? (I really hope you're not that self destructive...)

What if you already have high interest paying long term bonds right now? You'll get the biggest premium for them right now... so SELL!!!!

Good luck!

Aaron Hall