Debt securities are considered senior to equity securities when it comes to the right of repayment if a company is reorganized. Because debt holders fare better than equity holders in a corporate reorganization, debt securities are lower risk and less volatile than equity securities.

Nonetheless, after the subprime-mortgage meltdown, investors' fear of credit deterioration has led to wariness of all fixed-income investments, Swaffield says. Investors are demanding more for taking certain risks. There's been a widening of credit spreads and an increase in the yield demanded by investors. If you're willing to buy now, you can get a higher yield than you could have a couple of years ago for the same securities. But, on the flip side, if you bought a few years ago, the value or price of such investments has declined.

When considering fixed-income investments, Swaffield advises, investors should consider the following factors:

* Credit risks: the possibility that the bond issuer won't pay you back.

* Interest rate risks: When interest rates rise, the value of a bond goes down. Conversely when the Fed Funds target rate is lowered, as has occurred a number of times recently, the actions of the Fed have led to Treasury yields dropping, causing Treasury prices to rise.

Here are some low-risk instruments to consider:

1. Treasuries: Three-month T bills right now are yielding .01 percent, which is obviously not an attractive return, Swaffield later clarified. To have invested in long-term Treasuries a year ago would have been beneficial, he says. Right now, a 10-year Treasury has no credit risk but it has a higher interest rate risk than a three-month Treasury bill.

2. Bank CDs are FDIC-insured up to a certain amount, so to that extent they're safe. Yet they are less diversified than money-market funds; they're investments in just one bank.

3. Money market funds: A money market fund is diversified; if one part is invested in a less than lucrative area, there are other segments. Swaffield acknowledges the recent case of a problematic money market fund but points out that this resulted from its owning commercial paper issued by a financial institution that became distressed.

4. Debt issued by Fannie and Freddie -- or debt securities guaranteed by Fannie and Freddie -- can be purchased through a mutual fund. The Fed understands that fixing the housing problem is key, Swaffield says, and the government has announced a program to buy agency mortgage-backed securities or debt issued by Fannie or Freddie. Asks Swaffield: Is the government going buy all these securities and let Freddie and Fannie fail? No. Because of the subprime fear, seasoned mortgage-backed securities come with credit spreads of 200 basis points or 300 points (or 2 to 3 percent) over what Treasuries provide. And these are historically attractive spreads for essentially a low risk, he says.

Higher-risk instruments:

1. Municipal bonds: Historically the yields on municipal bonds have been less than those on Treasuries because they are tax-free, Swaffield says. But today the pre-tax yield on a 30-year municipal bond is greater than 170 percent of a Treasury of a similar maturity, he later added. Plus there's the tax benefit. Interest rates have gone up on these long-term bonds because of fear that municipalities will go broke. But Swaffield thinks that's too dark a view. You can buy a high-quality municipal bond fund at historically low prices for very attractive yields, he says.

2. Corporate debt or bank loans: The credit spreads on floating-rate bank loans have widened from 250 basis points over LIBOR to more than 1,000 basis points over LIBOR, Swaffield says. A consumer can get these types of loans packaged within a mutual fund. Floating-rate loans are considered "super senior " when it comes to repayment rights. What mitigates the credit risk is that these loans are secured by specific collateral. When interest rates rise, the rate of the loan resets, so the value of the loan does not decline. The price can decline, though, if there's a credit risk.

For reaping gains in the current challenging economic climate, the last three vehicles won his greatest enthusiasm, Swaffield later explained.

[This post was updated on December 23.]