Goldberg's Picks: The 4 Best Bond Funds for 2012

For the New Year, look to intermediate-term bond funds for the greatest growth potential and the least risk of loss in case rates spike.

The experts went into 2011 warning against owning long-term bonds. They believed bond yields would climb and that prices of long-term bonds in particular would suffer big losses. The experts were wrong -- big-time. Yields fell for most of the year. The benchmark ten-year Treasury returned an impressive 15.2%. Results for longer-term Treasuries were off-the-charts. Vanguard Long-Term Treasury Bond Fund (symbol VUSTX), whose bonds have an average maturity of 21 years, returned a whopping 26.0% (all returns are through December 23).

With bonds, however, what goes up does, eventually, come down. With the yield on the ten-year Treasury hovering around 2%, yields have a lot more room to rise than fall. And even though a surge in inflation, the bane of bond investors, seems like a distant possibility in a still-weak global economy, I'd avoid long-term funds.

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Steven Goldberg
Contributing Columnist, Kiplinger.com
Steve has been writing for Kiplinger's for more than 25 years. As an associate editor and then senior associate editor, he covered mutual funds for Kiplinger's Personal Finance magazine from 1994-2006. He also authored a book, But Which Mutual Funds? In 2006 he joined with Jerry Tweddell, one of his best sources on investing, to form Tweddell Goldberg Investment Management to manage money for individual investors. Steve continues to write a regular column for Kiplinger.com and enjoys hearing investing questions from readers. You can contact Steve at 301.650.6567 or sgoldberg@kiplinger.com.