Power Checklist

• In low-interest-rate environments, stocks typically do well and bonds typically lag because of the lower interest rates.

• People buy bonds for three fundamental reasons: income, safety, and tax advantages.

• The interest rate yields on corporate bonds are higher than on government bonds or municipal bonds because they carry more of a credit risk and because the interest is taxable.

• Junk bonds may have a place in your portfolio if you're willing to take the additional risk of principal to get a better rate of return on your investment.

• The major draw for municipal bonds is that the income they generate is tax free.

• Although zero coupon bonds are purchased at a discount, you'll pay taxes on the interest each year you own them as if you had just received the interest. Your best bet would be to keep these in a qualified retirement plan where you won't have to pay current taxes.

• A convertible bond is one that has two personalities; it looks like a bond, but it can also become an equity.

• Perhaps the biggest downside to bonds is that they provide no protection from inflation.

• With the introduction of Treasury Inflation-Protected Securities (TIPS), you gain the advantage of a government-issued note with inflation protection.