A danger in search for higher yields

In an era of money market funds yielding next to nothing, Southwest Florida's growing crowd of income-seeking retirees may be setting themselves up for a fall by committing their money to longer-term bonds or certificates of deposit in order to maximize their yield.

In 1980, less than a year after Susan Moseley began working as a stock analyst, she saw first-hand what a spike in interest rates can do to a bond portfolio.

Buying a newly issued 10-year U.S. Treasury note in the fall of 1979 would have felt smart at the time, with its annual yield of 9.33 percent. But by the end of 1980, that bond would have been a disaster -- at least on paper -- because yields on new bonds ended that year at 12.84 percent. Thirty-year bonds followed a similar pattern. (more)