With retirement nearing for such a sizable population, it's understandable that investors have deposited a net $670 billion into bond mutual funds since January 2009 while consistently pulling money out of stock funds. Fidelity Investments says its clients alone have added $100 billion in new cash to bond investments over the last three years.
But do stock-savvy boomers and others who have flocked to fixed-income investments really understand bond investing and the potential risks and rewards?
Many fund companies say there is a pressing need for investors to bone up on their bond basics. Fidelity upgraded online resources for bond investors in September; Nuveen Investments made a similar move this month. It is a recognition that bonds are more complex than stocks, with more moving parts that influence investment returns - yield, price, and interest rates, for starters.
Interest rates are perhaps the most critical risk for bond investors now. Short-term rates are near zero and have nowhere to go but up, though they are not likely to spike in the short run because the economy is expanding so slowly. When rates eventually increase, expect to see lower bond returns, possibly losses.
"It's a phenomenon that bond-fund investors haven't faced in a very long time," said analyst Loren Fox, of the fund-industry consultancy Strategic Insight. "Some will be surprised and disappointed when it happens." Indeed, investors have become accustomed to declining rates for the better part of 30 years.
Here are some key things to know about bonds:
