Perhaps nothing. Most investment experts believe that bonds should be part of any well diversified personal portfolio. But while bonds and bond mutual funds have a safe, staid image in the investment world (only bank savings accounts and certificates of deposit could be more boring, right?), they actually are more risky than you might realize. Fortunately, there are steps you ca take to minimize that risk.

How risky are bonds these days? A 1998 study by Morgan Stanley Dean Witter revealed that the volatility of 30-year US. Treasuries has steadily increased in the past two decades. In fact, in two 20-year periods that ended in 1996 and 199?, long-term Treasuries actually were more volatile than the S&P 500 stock index for the same periods.

Some of this 20-year volatility can be accounted for by the exceptionally high interest rates peaking at nearly 15 percent in the early 1980s (when interest rates go up, bond prices go down and bond holders can lose money). But it wasn't all that long ago-1994 when interest rates unexpectedly spiked and bonds suffered a dismal year.

Beyond the issue of price volatility, investors seeking income from bonds are facing another concern-low yield. As interest rates continue to drop, so do bond yields. That tends to make income-oriented bond investors, such as retirees, "reach" for higher yields. One place to reach is long-term Treasuries and corporate bonds, which offer higher returns than shorter-term bonds. They make that higher offer because longer-term bonds are hit the hardest when interest rates rise.

Investors reaching for income also buy low-rated but high-yielding junk bonds, which currently are yielding around ten percent-twice that of long-term Treasuries. Junk bonds had a great start i 1998, but faltered mid-year and finished up with a dinky 3.7 percent total return for the year. Bond experts worry that 1999 might not be good for junk bonds, either. If the U.S. economy slows down, as many expect, defaults by junk bonds will likely rise as their issuers typically newer companies-either go under or fail to meet bond payments.

Despite these risks and their increasing volatility, bonds remain an important part of the portfolio for most investors. And investors can reduce their risks by sticking to a few simple strategies, suggest many Certified Financial Planner professionals.

Stay shorter. Currently, the yield differences between long-term and shorter-term Treasury bonds are fairly narrow, so it makes sense to stay with the shorter-term bonds or bond funds that invest primarily in shorter-term bonds. Especially don't invest in long-term bonds if you're merely using them to park short-term cash. The slight extra gain isn't worth the risk.

Don't chase yield. If you need more income, discuss alternatives with your planner. With bond yields and stock dividends down these days, investors more often must look to cashing in some of their price gains for income.

Don't time interest rates. As bondholders from 1994 remember, interest rate hikes can come as a surprise. Don't try guessing which direction rates are going to go.

Hold to maturity. You eliminate the risk of price fluctuations by simply holding a bond until it matures. You can't do this with bond funds, however, since you can't control when the fund sells a bond holding.

Diversify. A mix of bond maturities can help ward off interest rate increases. By staggering the maturities of your bonds, from 1 or 2 years to 10 and 30 years, you periodically have bonds maturing for sale, which you can use to buy higher-yielding bonds. Also consider municipal bonds. Their tax-free yields are nearly as high as the yields of comparable taxable Treasuries.

March -30- 1999