Bonds: The Unbeaten Path to Secure Investment Growth

Chapter 17. INVESTMENT PLANNING WITH BONDS How to Design Your Bond Portfolio

There are two times in a man's life when he should not speculate: When he can't afford it, and when he can.

—MARK TWAIN

LIKE RODNEY DANGERFIELD, bonds get no respect. Their advantages are woefully underappreciated. We believe that bonds are the best investments available, and we wholeheartedly agree with Andrew Mellon's prescient late-1920s observation that "gentlemen prefer bonds." We believe that ladies should, too.

Mellon's statement was memorable, although a bit too pithy. Bonds are an extremely diverse financial category. They come in all denominations and maturities, from ultrasafe Treasury bills to risky junk bonds and unfathomable CMOs, and they serve a variety of needs and purposes. You don't simply buy "a bond" just as you don't simply buy "a car." There are important choices involved, and you need to understand the specific reasons for your intended purchase, what you're going to use it for, and how long you intend to keep it.

Investors tend to buy bonds with different strategies in mind. The 100 percent bond portfolio is a strategy for investing in very conservative, plain-vanilla bonds to preserve principal and receive a steady stream of income to support the life objectives and financial needs of the investor. This is in accord with Richelson Investment Rule 1: Define your objectives and Richelson Investment Rule 3: Don't lose money.

Designing a Bond Portfolio

We recommend following four steps in ...