How to protect against bond defaults
A bond default is obviously not a great thing for an investor and may cause you to lose a substantial amount of money. Even though bondholders are paid before stockholders in a bankruptcy proceeding, bond investors don't have priority and may still not come out great.
But you can protect against bond defaults by choosing bonds with great care. The safest bonds have high credit ratings across the board and tend to be issued by municipalities rather than companies. So, if you're looking at two different AA bonds, and one is to help fund a company, and the other is to pay for a bridge in Miami, the bridge is always the safer bet.
You can protect yourself even more by paying close attention to the bond and how the issuer is behaving. Monitor earnings, watch the news for signs of trouble, and keep a close eye on how those ratings are moving. If they're holding steady or increasing, all is well. If they're starting to slip, it's time to consider selling.