A global bond market rout stretching from the U.S. to Japan is making investors skittish, but it doesn't erase the value of fixed income in a diversified portfolio.

For those thinking of buying, the market ructions have made bond yields more attractive, financial advisers say. Over 80% of the global bond market now yields above 4%, according to BlackRock. The asset manager says the average yield in a bond portfolio it tracks has more than doubled from five years earlier.

Still, money managers say they are struggling to get their clients to deploy cash into the bond market. Individual investors have been holding more than $3 trillion in money-market funds. Many investors also have high concentrations of their portfolios in stocks because of the long bull market.

"People are getting used to phenomenal returns in stocks so they're likely overallocated to stocks, and the time to buy bonds is now to rebalance," said Allan Roth, a financial planner in Colorado Springs, Colo.

Investors can now earn a decent income without reaching far out on the yield curve or taking on too much credit risk. Bond returns are likely to best inflation now, Roth said, and with Treasury inflation-protected securities, or TIPS, you're guaranteed to beat inflation today, he said.

Scott Boyles, a financial planner in Austin, Texas, says the primary mistake investors make is expecting bond prices to remain static. But even with the price swings, fixed income generates income, provides diversification and offers predictability for future cash needs.

"Bonds shouldn't necessarily be judged by whether they're green or red today," Boyles said. "They should be judged by whether they're doing the job they were purchased to do."

What if I'm retired?

For retirees, bonds can serve as a liquidity cushion during equity market downturns. This buffer allows retirees to fund living expenses without being forced to liquidate depressed stocks.

"Bonds are the war chest that you can use for distributions," said Chad Holmes, a financial planner based in Fairhope, Ala. For example, if an investor's monthly cash-flow need is $10,000, Holmes recommends holding at least three years' worth of withdrawals in bond funds or other stable assets.

Investors can also use that war chest to rebalance, selling stable or appreciating bondholdings to buy stocks if they are trading at a discount. However, Holmes cautions that this strategy works best with investment-grade bonds that have minimal risk of default. To manage this allocation, Holmes uses actively managed bond ETFs.

The credit quality of the bonds is important. High-quality debt, such as U.S. Treasurys and top-rated corporate bonds, tends to be more stable, which might help a retiree protect their portfolio. Junk bonds advertise higher payouts, but their prices tend to plummet alongside stocks during economic downturns.

James Mayo, a financial planner in Lakewood, Colo., builds bond ladders, which means owning individual bonds or target-maturity bond funds with maturities that span multiple years. Clients get predictable cash back when the bonds mature, which can go toward future spending needs, regardless of interest-rate fluctuations.

What if I'm younger?

For investors saving for near-term milestones such as a home down payment, Mayo recommends ultra-short-term bond funds so their savings don't lose value if the market drops. Roth recommends short-term Treasury bills.

There is a difference between holding individual bonds and holding bond funds. An individual bond has a fixed maturity date, so as long as the issuer doesn't default or call the bond early, you are contractually guaranteed to receive 100% of its face value at maturity, regardless of price fluctuations along the way.

In contrast, a bond fund is an open-ended portfolio that continuously buys and sells bonds to maintain a target duration, which is a measure of a bond's sensitivity to interest rates. Because it never matures as a single unit, rate spikes can lead to prolonged paper losses, or realized losses if you sell during a down cycle.

By holding short-duration bonds, investors can damp overall portfolio volatility, capture predictable income and avoid the price swings currently affecting longer-term debt as rates fluctuate, said Cameron Willcox, a financial adviser in New York City.

What if I'm sitting on paper losses?

Many investors who have held bonds since 2021 or earlier are sitting on paper losses. Willcox believes that the worst of the price decline has likely passed, though it wasn't ideal to have been holding long-term bonds when the Federal Reserve started raising rates in 2022.

Investors who are uncomfortable with ongoing volatility might consider shortening their portfolio duration rather than exiting fixed income entirely, said Willcox. Still, cutting duration locks out future price gains and leaves investors vulnerable to earning lower yields if interest rates fall.

When existing bonds fall in value, advisers say investors shouldn't rush to sell. Selling at a loss to chase higher rates can result in lower returns, said Andrew Van Alstyne, a financial planner in Waxhaw, N.C. Holding an individual bond to maturity still locks in its full principal and interest.

This explanatory article may be periodically updated.