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By Rachel Haig | 01-14-2010 09:56 AM

Navigate an Uncertain Bond Market

Morningstar's Christine Benz offers strategies and picks to make the most of a less-than-thrilling bond outlook.

Rachel Haig: I'm Rachel Haig from I'm here with Morningstar's director of personal finance, Christine Benz, who recently wrote an article about looming threats in the bond market and what investors can do about them. Thanks for joining me, Christine.

Christine Benz: Rachel, nice to be here.

Haig: A lot of people have been rushing into the bond market. Especially with what happened in 2008, bonds were looking attractive. But now they're looking like they might be a little overheated, with potential increases in interest rates coming. For people who are retiring soon and need a certain bond allocation, what are they to do?

Benz: You're right, it's a tremendous conundrum right now, because people who are nearing retirement or in retirement do need bonds' stability and protection. A couple of ideas I would throw out there. One thing you might do is delegate a portion or all of your fixed income portfolio to an active manager. A couple of funds I like, good core active funds, would be Harbor Bond, which is a clone of PIMCO Total Return; Dodge and Cox Income; MetWest Total Return bond.

These are real opportunistic funds, and so they can go where they think the bargains are, or avoid the problem spots in the bond markets. So that's one idea for the core of a fixed-income portfolio.

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