Ric Edelman: When people get scared by the stock market, they often sell their stocks, and they buy bonds instead, thinking bonds are safer. But, bonds aren't nearly as safe as you think they are. In fact, bonds face two big risks that can cause you to lose lots of money. The first risk is due to rising interest rates. If interest rates rise, bond prices will fall, and bonds that have long maturity dates will suffer the most. In fact, a bond with a 7-year duration could lose 7% in value for every 1% increase in interest rates. So do you think interest rates will rise over the next few years? If rates go up 3%, that same bond could go down 21%, and rising rates are just the first risk to bonds.

The other big risk is called credit risk. That's the danger that a bond's rating will be downgraded. If for instance a AAA bond is downgraded to AA, A, or BBB, the bond's value would fall perhaps as much as 20%, maybe even more, depending on market conditions. If that downgrade occurs at the same time as interest rates rise, you could find yourself losing 30%, 40%, even 50% of your investment's value. This doesn't mean you shouldn't buy bonds, it just means you need to make sure that you understand all your investment risks. This is why the best approach is to own a diversified portfolio instead of making big debts by buying only one kind of investment on it, or another, buy many.