Why aren't bond mutual funds seeing huge selloffs now?
The Fed sets the overnight borrowing costs by setting its overnight target rate.  The markets determine the rates at which the treasury can borrow through the issuance of bonds. The Fed's actions will certainly influence the price of very short term bonds, but the Fed's influence on anything other than very short term bonds in the current environment is very muted. Currently, the most influential factor keeping bond prices high and yields low is the high demand for US treasuries coming from overseas governments and institutions.  This is being caused by two factors : sluggish growth in overseas economies and the ongoing strength of the US dollar.  With many European government bonds offering negative redemption yields, income investors see US yields as relatively attractive.  Those non-US economies which do not have negative bond yields either have near zero yields or large currency risks or both.  Political issues such as the survival of the Euro also weigh heavily on market perceptions of the current attractiveness of the US dollar.  Italian banks may be about to deliver a shock to the Eurozone, and the Spanish and French banks may not be far behind. Another factor is the continued threat of deflation.  Growth is slowing around the world which negatively effects demand.  Commodity prices remain depressed. Low growth and recession outside of the US translate into a prolonged period of near zero interest rates elsewhere together with renewed QE programmes in Europe, Japan, and possibly elsewhere.  This makes the US look relatively attractive and so there is huge demand for US dollars and bonds.  Any significant move in US interest rates risks driving to dollar ever higher which would be very negative for the future earning of US companies which rely on exports and foreign income.  All of this makes the market believe that the Fed's hands are tied and low bond yields are here for the foreseeable future.    Of course, even in the US growth is relatively slow and vulnerable to a loss of steam following a move in interest rates. Since 1971, mortgage interest rates have never been more than .25% below current rates (3.6%).  Even restricting just to the last four years, rates have been as much as .89% higher.  Overall, we're much closer to the record low interest rate than any type of high.  We're currently at a three-year low.   Yes, we should expect interest rates to go up.  Eventually.  Maybe when that happens, bonds will fall.  It hasn't happened yet though.  In fact, there remain significant worries that the Fed has been overly aggressive in raising rates (as it was around 2008).  The Brexit side effects seem to be leaning towards an easing in monetary policy rather than a tightening.
"Usually there are annual or semi-annual reports for a mutual fund that may give an idea for when a fund will have ""distributions"" which can cause the NAV to fall as this is when the fund passes the taxable liabilities to shareholders in the form of a dividend. Alternatively, the prospectus of the fund may also have the data on the recent distribution history that is likely what you want. If you don't understand why a fund would have a distribution, I highly suggest researching the legal structure of an open-end mutual fund where there more than a few rules about how taxes are handled for this case." Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market. "Bonds are priced ""very high"" because their price is compared to their yields. With the current interest rates, which are very low, the bond yields will be low. However, bond issuers still need the money, so there still will be high par value, and investors will not sell bonds at a loss unless there's a better investment (=bonds with better yields). Once the rates start going up, you'll see bonds with current rates dropping in value significantly. Once alternatives appear, people holding them will start dumping them to move the money somewhere more profitable. Similarly the stocks - since there's no other investment alternatives (yields on the bonds are low, interests are low), people invest more in the stocks. Once the rates go up, the investors will start rebalancing portfolios and cashing out." When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that. One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market. "Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses.  Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of ""bonds"" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments." I don't see a contrast. It's really hard to predict which mutual funds will do well in the future. Predicting that ones which have done well recently will continue to do well works slightly better than chance. The WSJ article and Morningstar agree on all the objective facts, they just spin them differently. "Were you thinking of an annuity? They guarantee regular payments, usually after retirement. In any case, every investment has counterparty risk. Bonds guarantee payout, but the issuer could always default. This is why Treasury bonds have the lowest yields, the Treasury is the world's most trusted borrower. It's also why ""junk"" bonds have higher yields than investment grade and partially why longer duration bonds have higher yields. As mentioned, there's bank accounts, which gain interest and are insured by FDIC up to $250,000. If the bank folds, they'll be acquired by another and your account balance will simply transfer. Similar to bank accounts are money market funds. These are funds that purchase very short term ""paper"" (basically <90 day bonds). They maintain a share price of $1 and pay interest in the form of additional shares. These have the risk of ""breaking the buck"" where they need to sell assets at a loss to meet investor withdrawal demands and NAV drops below $1.00. Fortunately, that's a super rare occurance, but still definitely possible. Finally, there's one guy I've seen on TV pitching a no risk high yield investment. I can't remember the firm, but I am waiting to see them shut down for running a ponzi scheme." There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio.  You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters.  The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere.  As more people want to buy stocks, the price rises.  Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere. There's no doubt that equities, as well as junk bonds (which have, in Europe, according to BAML, reached the same average return as 10-year-US treasuries) are currently overvalued, which is why I, and I suggest this to any active investor, have taken out all my money from tradable equities and debt and invested it into undervalued dank memes. FI funds don't always drop in rising rate environments, and can outperform thanks to simple bond math and the way the indexes are built.  It's one of the places where it's very easy to argue in favour of some form of active management. The US Treasury is not directly/transactionally involved, but can affect the junk bond market by issuing new bonds when rates rise. Since US bonds are considered completely safe, changes in yield will affect low quality debt. For example, if rates rose to levels like 1980, a 12% treasury bond would drive the prices of junk bonds issued today dramatically lower. Another price factor is likelihood of default. Companies with junk credit ratings have lousy balance sheets, so negative economic conditions or tight short term debt markets can result in default for many of these companies. Whether bonds in a fund are new issues or purchased on the secondary market isn't something that is very relevant to the individual investor. The current interest rate environment is factored into the market already via prices of bonds. "1. Interest rates What you should know is that the longer the ""term"" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy ""bonds"" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the ""average duration"" or ""average maturity"" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of ""complicated"" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also ""floating rate"" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:" Lowered rates = boom for equities, currently held bonds, and assets. Cheaper money means a (disproportionately) good time had by all. This all comes with malinvestment, potential for moral hazard, and savers losing in a big way. Why save for retirement when your risk free return on US Treasuries can barely keep up with inflation? As an aside, it is not really a risk free rate anymore, with $20 trillion in debt and no real hope of paying it off.  This is why we see the rate increases and movement towards asset sales by the Fed to get the poop off their books. They are worried about all of the above and need more arrows in their quiver when the next recession hits. They won't have enough, however. They are trying to right a ship that is fully overturned.   This is now the longest period of growth (however tepid) since the tech bubble of the 1990's. Are the fundamentals really better than then? There are some important thing you need to understand about bonds, and how they work:  * A bond doesn't need an active market - like a stock, for example - to have value.    * Nonetheless, there exist active markets for all of these bonds.    * The purpose of buying these bonds was not to step in due to the absence of a market.  Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop.  * The Fed can hold any and all of these bonds to maturity, while receiving contractual payments all the while, and never sell a single bond back to the market.