The global bond market dwarfs the global stock market. The market for bonds is estimated at $67 trillion, with nearly half of those bonds originated in the United States. That compares to a global stock market valuation of just above $40 trillion, even after the market crash.

The $33 trillion of outstanding U.S. debt includes U.S. government bonds, corporate bonds, municipal (state and local) bonds, mortgage-related bonds and short-term money market securities. Most of these bonds trade daily, just not as visibly as the prices set in the stock market. So perhaps it's time to at least understand the global bond market and the opportunities it offers for portfolio diversification.

That's what is behind Fidelity's recent push to inform investors about bonds, and make it easier -- and less expensive -- to create your own portfolio of individual bonds or choose an appropriate bond fund to balance your portfolio. At Fidelity.com there are online educational seminars, tools that help you choose from more than 10,000 bonds -- and more than 100 fixed-income specialists who will help you over the phone.

Richard Carter, VP of fixed income securities at Fidelity Brokerage, says: "Our goal is to make sure that investors have a properly diversified portfolio. They need to know that there is an alternative beyond stocks and cash or money market funds. Bonds -- whether individual securities or an appropriate bond fund -- can fill that gap."

Fidelity has created an extensive set of Web tools to help wealthy individual investors construct a portfolio of individual bonds and to create a "bond ladder" of similar bonds maturing in successive years. It's everything investors need to become their own bond portfolio manager. For those who want to devote less time, there is a wide range of professionally managed bond funds available from Fidelity -- and every other fund management company.

Yet the ordinary investor rarely considers bonds as part of a portfolio, unless they are part of a diversified mutual fund that happens to own both stocks and bonds.

Bond basics

Before you start considering the role of bonds in your investments, you need to know some basics about the two risks in owning bonds.

The first is called "credit risk" -- the risk that the company might default on its interest payments. You can usually minimize this risk by purchasing highly rated bonds, with AAA being the top rating. And you can minimize the overall credit risk in your bond portfolio by purchasing a diversified group of bonds. That's easiest done through a mutual fund, where portfolio managers pick bonds for you.

The second risk is called "interest rate risk." It is simply the risk that if you lend money for 20 or 30 years at a fixed rate, any future increase in the general level of interest rates -- because of inflation -- will make your bonds less attractive.

If you pay $1,000 today for a 20-year top-rated corporate bond paying 5 percent, and in a few years they sell more bonds, but with a 7 percent interest rate, then your old, lower-yielding bond is less attractive -- and worth less in the marketplace. It will still pay $1,000 at maturity, but in the meantime you'll settle for a lower interest rate than others are receiving. Continued...