"Who wants to invest in Treasurys now that you have a risk of not getting your money back?" asks Orman.
U.S. Treasury bonds have been considered safe investments because they are backed by the credit of the U.S. government. However,now that Washington is in flux over paying its bills, there is increased risk associated with Treasurys.
Making matters worse, on the news of a weak jobs report, Treasury yields hit a three-month low in October. "They are going to have to increase interest rates in order to entice people to invest in Treasurys; because of that I want you to get out of bond funds. I don't care if you invest in individual bonds, but not bond funds," Orman says.
Bond funds are mutual funds made up of individual bonds.Unlike individual bonds, bond funds do not have a maturity date. So when interest rates rise, the value of your bond funds fall and your principal is not safe.