Hey, everybody! Randy Miles here. Today I’d like to discuss interest rates and bond funds. Believe me, they go hand in hand, but probably not the way you think. I promise you this won’t be boring. I’ll get right to the point. You know, I think everyone would agree that today in the United States, interest rates are probably as low as they could possibly go. Now look, I undserstand there has been some discussion on negative interest rates. I’m not going to speculate whether or not the federal reserve will or won’t make that move. What you need to know is a rise in interest rates could have a significant impact on the share price or statement value of that portion of your portfolio, specifically bonds. Some might argue and say, “Wait a minute, Randy. That portion of my portfolio is US Treasuries. They’re investment-grade corporates, they’re tips. How can such safe investments be subject to a rise in interest rates?”
You kneed to know this: As interest rates rise it has the opposite effect on the share price of that bond fund that you own, regardless if it’s an investment-grade corporate, a tip, a treasury… so, depending upon the duration of the bonds that are held in your bond fund, it could have a very significant impact on that share price, the monthly statement value of your portfolio. Listen, maybe recent events caused some of you to consider making some changes or adjustments to your portfolio. If you do, I suggest that you owe it to yourself to carefully scrutinize what’s typically known as the safe portion of your portfolio (bonds), just as carefully as you scrutinize the more aggressive, growth-oriented portion of your portfolio known as equities or stock. Okay?
As always, stay nimble, be tactical, and when it comes to bond funds, make sure you know what you own!