What's a bond fund?

Bond funds work just like stock funds, but they invest in - you guessed it - bonds rather than stocks. You can invest in bond funds just like you can stock funds. There are bond index funds, too, and they can be just as advantageous as stock index funds. The no-brainer approach is to choose something called a "total bond index fund," which invests in - duh - the entire bond market.

Bond funds that specialize in Treasury securities (including TIPS) are the safest, but offer the lowest potential return. Bond funds that invest in more volatile types of bonds tend to offer higher potential returns.