Q: First of all, I thoroughly enjoy your radio show. The information you give has certainly made me a better informed person. You were also the perfect fill-in for Clark Howard.

With many years behind me and being retired, I am in the process of purchasing bonds for income. Some of my funds have gone into Corporate Investment Grade Bonds, some in Hi-Yield Bonds, and some in Municipal Bonds. (Yes, I also have some CD’s).

With rising interest rates, no one wants to lose their principal. Unfortunately it is almost a given that it will happen buying bonds now. At this point in time, I have chosen to buy Municipal Bonds (T.R. Price Georgia Tax Free Bond Fund). The reason for this decision is that at least I will not have to pay taxes on the interest paid to me. That is a way to somewhat cushion the loss when interest rates rise.

Would you hold off on purchasing more bonds or bond funds now, and if so, for what time period? I have no way of knowing when interest rates will stop going up. The longer I wait, the longer my money sits in a Money Market account earning very little interest. Even though CD’s are safe, my money is tied up for a specified period of time and as rates increase, you are left far behind in potential earnings.

A: Thanks for your nice note. In general, the higher interest rates go, the less your bond will be worth. So while you might miss out on a little bit of interest over the short-run, at least your bonds won’t lose value. So, don’t feel bad about sitting out on the sidelines for the moment (you should see how much cash I have in my retirement accounts).

That said, I think buying Muni bonds is a good move. Many of them are federal and state tax free, which in Georgia is pretty significant if you’re in the top tax bracket. You might also consider I-bonds. While you’re limited to $30,000 per year on the I-Bonds, they are inflation-protected. You can read more about I-bonds at www.savingsbonds.gov.

Here are a couple of short-term suggestions: First, consider a short-term or medium-term bond fund. With any luck, you’ll pick a good one and the managers will be staying on top of the interest rate environment, shifting the portfolio to keep returns strong. Another suggestion is to move some of your cash into a better, higher-paying money market account, like ING Direct (www.ingdirect.com) or Emigrant Savings Bank (www.emigrant.com).

A final suggestion: While you’re retired and are looking for stability in your returns, don’t forget that you need to have enough growth in your portfolio to keep it going throughout your (hopefully) long retirement. So make sure you have at least 50 percent of your money in a well-diversified stock portfolio, perhaps in a few different index funds.

Thanks for your generous comments about my work on Newstalk 750 WSB. I hope you’ll keep tuning in and sign up for the free weekly newsletter.