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Q With money markets and certificates of deposit yielding more than 5 percent, why would I invest in bonds at all right now? -- DON

A Money market rates are extremely short-term and change daily. If the Fed keeps cutting interest rates, a 5 percent yield could turn into a 4 percent yield pretty quickly. While it is true that some of the best yields right now are from money markets and CDs, this will not always be the case.

First it is important to distinguish between short-term and intermediate- to long-term bonds. Short-term bonds are bonds that mature within the next two years. While CDs and money markets are not technically bonds, they can be included in this short-term category for the purposes of analysis. Intermediate-term bonds have maturities from two to 15 years. Long-term bonds are more than 15 years.

The attractiveness of any one of these categories can change over time based on current market conditions. Since bond yields vary inversely with interest rates and interest rates change over time, it is important for bond investors to be aware of these conditions in order to pick the right strategy. For example, unless you are watching the market on a regular basis, how will you know when to invest in intermediate-term bonds to pick up some yield without having to lock up your money in a long-term bond?

Another consideration with CDs is that you have to keep reinvesting your proceeds each time a CD matures. While it is true that CDs and money markets are generally a conservative investment, you can still lose your principal if the CD or money market is not FDIC-insured.

Also, you aren't able to time when they will stop being competitive. Yes, you will find the best-yielding CD or money market rate for right now. But if you are using bonds to balance out the risk in a long-term investment portfolio for retirement, and you don't have the time, energy and focus to watch the market, you will likely just be better off with a bond fund.

KRISTA ZACHMAN, CFP

Ka-Ching's financial experts at Edina-based Accredited Investors Inc. can be reached at kaching@startribune.com.