Should you own bonds when interest rates rise?
It’s no secret that this has been a tough year for the stock market. But if you own bonds, you may also have some concerns.
What’s happened is that the Federal Reserve has been raising interest rates to fight inflation. This can cause the value of your existing bonds to drop, because investors will want to buy the newly issued bonds that pay the higher rates.
Still, bonds continue to offer you some key benefits. For one thing, as long as you hold your bonds until maturity, you’ll continue to receive the same interest payments. Also, bonds can help reduce the effects of market volatility on a stock-heavy portfolio.
And if you own a mix of short-, intermediate- and long-term bonds, you’ll likely always have some bonds maturing. When they do, you can reinvest the proceeds into the new, higher-paying bonds.
It might not feel pleasant to see the current value of your bonds drop. But if you’re not selling them before they mature, and you can take advantage of the opportunities afforded by higher interest rates, you’ll find that owning bonds can still be a valuable part of your investment strategy.
This content was provided by Edward Jones for use by Bryan White, your Edward Jones financial advisor at 10760 FM 2813, Suite 200 Flint, TX 75762 – (903) 705-6107.
Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.