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Shell Shock?

Surprise: Putting your nest egg in bonds may no longer be safe.

This story appears in the April 2003 issue of Entrepreneur. Subscribe »

Billions of dollars have flowed out of stocks and into bonds over the past 18 months, and it's easy to see why. While stocks dumped yearly double-digit losses on investors between 2000 and 2002, bond portfolios trumped the major stock market indexes three straight years, the first time that's happened since FDR had nothing to fear but fear itself. Investors who sought safety in fixed-income over the past year, though, should be afraid of something more tangible--bond prices may be on the verge of a nasty downturn themselves.

The problem is that investors by the millions moved sizable portions of their nest eggs into bonds at what could turn out to be the worst possible time. In a fool-me-twice scenario, an investor who took a big hit from stocks finally throws in the towel and moves her money into bonds just in time to take another hit, this time from supposedly safe bonds.

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