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There is a dizzying array of bond mutual funds to choose from, limited only by the imagination of the marketing departments of the securities industry. Fortunately, you can ignore most of these products as they have one or more of these flaws:

• Sales charges
• Excessive operating expenses
• Excessive risk
• Underperforming the market

Sales charges

There is no justification for paying sales charges for a bond fund. They enrich the salesman rather than you and are a pure loss to your nest egg. There are plenty of no-load bond funds and there is no evidence that bond funds with a sales charge perform better than no-load funds. On the contrary, a front-end load (sales charge) is a handicap that guarantees that these funds start out at a disadvantage.

Operating Expenses

The cost of operating a bond fund should be minimal. It’s not rocket science unless the fund tries to make things complicated. As living proof that a bond mutual fund can be run with no sales charge and minimal operating expenses, Vanguard’s bond funds typically are run with less than 0.2% annual expenses and their better performance than most other bond funds is mostly due to their lower expenses.Excessive risk

There are several types of risk affecting bond investments:

• Credit risk: The most creditworthy bond issuer is the US Treasury. They are the benchmark for all other bonds, and they pay the lowest interest rate for any maturity date. The next step up from there are state governments and government agencies, dollar-denominated bonds from the strongest foreign governments, followed by top grade corporate bonds. The next step down from there are investment-grade corporate bonds with ratings from AA down through A to Baa, the lowest investment-grade bonds. Anything lower than that is speculative grade and the risk most likely outweighs the rewards. If you look back through the performance of bond funds, you will find that the total return is highest over the long run by avoiding the very safest bonds (for which you give up too much for that slight extra bit of safety) and by avoiding the higher risk bonds. During times of market turbulence, there is a flight to the very safest bonds and US Treasury securities will pay an even lower interest rate - funds that invest in those securities will sometimes lock in a trading profit in those times. Choose your bonds or funds accordingly.

• Duration risk: Long term bonds (bonds that mature in more than 10 - 15 years) lock in an interest rate for a long time. If you are lucky, you lock in a high interest rate and continue to enjoy high income when prevailing interest rates eventually drop. If you are unlucky, you lock in a relatively low rate and miss out on higher rates when prevailing rates increase. In a bond fund, the inflow and outflow of funds results in trading activity, and the realization of gains and losses that would not occur if you simply bought the bonds yourself and held them to maturity. Again, there is a sweet spot for duration risk but this varies a bit with the economic cycle. Currently the sweet spot is in the short term, about 2 to 5 years duration, as interest rates are at historic lows and there are signs of inflation, particularly with respect to energy and raw materials. If you buy individual bonds and stagger the maturities you can manage duration risk better, but that will be a subject for a future article.

Underperforming the market

There’s really little excuse for a bond fund to underperform the market. Usually this is caused by excessive operating expenses or terrible management. Select a bond fund that has a theme and a clear investment policy, such as “Short-Term Federal Fund Investor Shares”.

Compare Your Funds with These

Before investing in a bond fund, compare it with the equivalent fund from Vanguard.  See the Vanguard Fund Information page.

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Tracking your investments against the market is a lot easier for one investment than for a portfolio.  If you want to include trading history, comparison of investment performance against comparable indexes, and updates that reflect current prices, you will need power tools.  Here are some free tools that can help:

Stockalicious will let you enter your transactions (not just your current holdings), and will both analyze your past performance, let you know how balanced or concentrated your asset allocation is, and while I do NOT recommend looking at your investments multiple times during the day, you can get up-to-the-minute reports on all your investments there.  They are so confident in what they offer that they even compare Stockalicious with what Google, Yahoo, and MSN’s finance sites offer for portfolio tracking.

Bigcharts portfolio tools is a free service of Marketwatch that lets your register free and track your portfolio:

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T-Mobile is expected to make the first intelligent cellphones available in October, using the Google Android operating system, using HTC’s smart phone as the hardware platform.

Here’s a good demo of the full capabilities of a phone with Android:

Here’s a demo of what may be a prototype of the phone T-Mobile will be releasing:

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It’s not often that you can make a huge life-changing difference in the lives of dozens of poor children in a few minutes for a few dollars. You can browse through thousands of educational project proposals, each of which is prepared by a teacher in an impoverished area and vetted by a charity that ensures that the money is properly spent. You can choose the specific project you want to help fund, know how much money is needed to complete the project, choose how much you want to give, and know that your gift will be acknowledged. For more information, see DonorsChoose

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Bookmarks are a mechanism for remembering web sites that you want to return to. Virtually every commonly used web browser has built-in support for bookmarks.

The problems with saving bookmarks on your computer include:

• If you save a bookmark on one computer, you can’t access it on another computer.
• If you use multiple computers, and bookmark web sites on each one as you discover them, your bookmarks will be scattered across multiple computers.
• If something bad happens to a computer where you have bookmarks stored, they are lost unless you routinely back up your bookmarks (something that I’ll bet fewer than 1 in 100 people do).

The key idea here is that bookmarks are for remembering websites, something you encounter online, so why not save the bookmarks online, too?

There are a few easy ways to do this:

• Use google bookmarks - Install the google toolbar to create bookmarks or go to bookmarked web pages
• If you use Firefox as your browser, consider using the Foxmarks bookmark synchronizer to keep the bookmarks synchronized on all the computers you use.
• Install the toolbar for an online bookmarking service such as Spurl.net or stumbleupon.com — just be sure to decide whether or not you want you want to make your bookmarks private. In that case, Spurl or the google or firefox solutions may be better.

One advantage of the Spurl solution is that it keeps a copy of the web page as it existed, even if the page or web site no longer exists. If privacy of your data is not a major concern, there are other alternatives, you have plenty of options, including Digg, Delicious, and a host of others. Just remember that ease of use is very important, both for setting and going to bookmarks.

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