Is now a good time to invest in Bond Funds?

People don't usually hold bonds so they will "appreciate". Unless you think you can predict the economy and Fed decisions better than all the big institutional investors out there, you're best off thinking of bonds as an income-producing investment instead of something you can make money on by betting on the short-term direction of interest rates. (Heck, even Bill Gross has managed to screw that up recently.)

So, if you've decided your long-term asset allocation plan calls for more bonds, just go ahead and buy more bonds. If you want to invest in individual bonds, I think it would make sense to build a bond ladder with different durations to start with. For a bond fund, you might DCA in, or divide your money between short, intermediate, and long term funds, or pick a good core bond fund and let its manager worry about predicting the Fed and where the best returns are likely to be.

-Sandra the cynic

There are too many variables that affect long term bond rates. Even predicting which way the fed funds rate will go is not a no-brainer. My prediction based on the blogs I read is that rates (especially for long term bonds) will head higher before they head lower, so for now I'm staying away from bonds. Only when the long term bond has a better yield than what I can get in a regular money market fund will it be worth the risk of investing in it.

But you have to make the call for yourself independently!

Anoop

To your first point; the fact the stocks are at or near their high is not necessarily a sign they are at a top, or poised for decline. Look at an S&P chart (yahoo shows a nice one) and you'll see that the market spent much of the 80's and nearly all of the 90's at a high. This can turn into a long lecture, so I'll stop with that observation.

If rates have peaked and are due to fall, I'd suspect that would be a good source of fuel for further market gains, companies like to borrow more money at lower rates to expand their business. At this point in the cycle, my own gut says bonds have as much room to fall as rise. The shape of the yield curve, inverted, points toward the short term rates dropping, and longer term rising to get back to normal. As far as the prediction toward recession, I'm not on that bandwagon.

JOE