Counterintuitive Is Not Just A Cool-Sounding Word.

It is the way to describe many of our best investment choices right now. With stock markets in volatile moods and economies on the ropes, investors are wondering where to invest. Bonds. That's usually the call when stocks get too scary.

But bonds are not always safe. The better-quality bonds do pay you back your money, with interest, but if you need your money back before the bond matures, you can make or lose money. Sometimes a lot.

When interest rates sink, such as during a recession when central banks want it to be easier for businesses and individuals to borrow money (to hopefully stimulate the economy), the price of bonds you hold will go up if the interest rate you have is better than what newly-issued bonds would offer. The reverse is true when things are going perhaps too well economically and the central banks decide to slow things down a bit.

Well, rates also rise by accident, when things are bad--not just when they're too good. If a usually economically-sound country keeps issuing bonds to pay for government services that are not funded well enough by tax revenue, that indicates to investors that the country might be facing difficulty. Between that and an increased supply of new bond issues, the demand/supply ratio is affected. When there are not enough buyers, sellers either lower their prices or sweeten the pot. Offering higher yields is the sweetening the pot, and selling for less than face-value (the earlier scenario) is the lowering of the price.

If the USA is taking on massive amounts more debt, there's a leveraging of the increase in yield it must offer to attract investors. That pushes down the value of the bonds one might already hold... and that's the kind of nest egg damage a lot of folks seek to avoid when they go into bonds in the first place.

So, what to do?