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Rocky road ahead for bonds

You might have heard last October that bonds beat stocks over a 30-year period for the first time in more than 150 years. Between October 1981 and October 2011, long-term bonds gained an average of 11.5 percent per year compared with the Standard & Poor’s 500 index’s 10.8 percent return, according to data by Jim Bianco of Bianco Research.

But don’t be fooled by such data, experts say. That result was due mainly to the all-time-high interest rates of the 1980s. Since then, bond rates have declined. “With interest rates at historical lows, bonds aren’t looking so hot for the future,” says William Hammer Jr. of Vanderbilt Partners.

If you invest in bonds, you should look for short-term funds that are rated AA or better and have a duration of about 1 year, says Jonathan Bergman of Palisades Hudson Financial Group, so if interest rates rise, your money is available more quickly to reinvest in higher yielding stocks.