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Are Long-Term Bonds Right for You?

The 30-year bond has made a comeback, but individual investors might be better off picking bonds their own size.

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This story appears in the June 2006 issue of Entrepreneur. Subscribe »

The decision by the federal government earlier this year to reintroduce the 30-year Treasury bond generated excitement at some mutual funds, insurance companies and other institutional investors. The financial press responded with sweaty-palm coverage about how pent-up demand drove long-bond bidding at the February auction, the first since 2001. And another auction is coming in August. But small-fry investors don't need to worry too much about it all.

Long bonds were never especially popular with individual investors. That's not likely to change now, since short-term interest rates are paying bond investors about as much as long-term rates. If you can gain as much from a 10-year note as a 30-year bond, why lock up your money for longer? For some institutional investors, there are perfectly rational reasons. A pension fund manager, for instance, might want to match assets to liabilities that are drawn out over decades. But time is more likely the enemy of individual investors, as inflation eats into the long-term fixed interest rate on their long bonds.

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