As of press time, Federal Reserve was expected to start raising interest rates in September 2015.
Every prediction about the timing of an interest-rate hike has been premature, but one is coming, says Charles Rotblut, who is the vice president of American Association of Individual Investors, which aims to educate individual investors on the stock market.
Regardless of when a rate hike takes place, bond funds are certain to take a hit, say Rotblut and Brent Burns, who is the president of Asset Dedication, which provides services for financial planners. “Any bond fund is at risk,” Burns says.
Investors will be better off with individual bonds, Burns says. He likes Federal Farm Credit Banks and other government-agency bonds for their predictability and government backing.
Morningstar says that because of their government affiliation, the bonds are secure and often deliver more-favorable earnings than what you’d receive from other bonds, because some are exempt from state and local taxes.