CANFIELD, Ohio -- Most people believe that bonds are a safer alternative to stocks. They usually produce lower rates of return, but with less volatility, or risk.

This can certainly be true, but the bond market is a complex animal. Not all bonds are created equally.

Long-term bonds are very sensitive to higher interest rates, and can fall substantially in value when rates rise. You may ultimately get made whole, but you may have to wait until the bond’s maturity for that to happen. In the case of a 25 or 30-year bond, you might be waiting a while.

In addition, low-quality bonds issued by shaky companies could potentially default, meaning the company could fail to pay interest and/or principal payments in the event of bankruptcy.

Bonds can be an essential part of a well-diversified portfolio, but it is important to know what you own and how it will react based on changing market conditions and interest rate fluctuations.
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