Say it with me: Bonds are a good thing

— -- Q: I am 50 and I'm realizing I should have owned more bonds and less stocks. Should I buy bonds through mutual funds, exchange-traded funds (ETFs), money markets or should I buy them from the government?

A: Many investors who thought the only investments were stocks are getting an education from the bear market.

At the risk of sounding like a broken record (or a financial journalist), the market bloodbath is another example of why bonds fit into your portfolio.

Over the long term, diversified bonds generate returns, on average, of 4.93% a year, says IFA.com. You're right, that's far from the 9.5% average historical returns of U.S. stocks. But it sure beats a savings account.

And the risk level of a diversified basket of bonds, as we've been reminded of lately, is much less than the risk of stocks. It's not a bad tradeoff. And that's why nearly all investors should have some bonds in their portfolio to help smooth out the bumps.

Don't get me wrong. Over the long term, stocks are the best bet. But, they can give you an ulcer in the short term, or worse, cause you to take action you might regret later.

As you point out in your question, there are many ways to buy bonds. The easist way is to buy shares in a bond mutual fund or exchange-traded fund (ETF). This method is simple because you buy one investment and you're instantly diversified among many bonds. You can buy bond funds that invest only in super safe Treasuries or bonds issued by municipalities or companies.

There are also bond funds that invest in all types of bonds. Another huge advantage of bond funds is that they handle laddering for you. In another words, they invest in debt securities that mature at different times.