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Should I buy short-term or long-term bonds?

All else being equal, a bond with a longer maturity usually will pay a higher interest rate than a shorter-term bond. For example, 30-year Treasury bonds often pay a full percentage point or two more interest than five-year Treasury notes.

The reason: A longer-term bond carries greater risk that higher inflation could reduce the value of payments, as well as greater risk that higher overall interest rates could cause the bond's price to fall.

Bonds with maturities of one to 10 years are sufficient for most long-term investors. They yield more than shorter-term bonds and are less volatile than longer-term issues.