If You're Holding Bonds in Your Portfolio, You need To Stop Everything and Read This Right NoW!
If You're Holding Bonds in Your Portfolio, You need To Stop Everything and Read This Right NoW!
Are you sitting on a ticking time bomb in your portfolio? This recent S.E.C. warning about "Interest Rate Risk" explains how bonds may not be the best choice for stability in a climbing interest rate environment. Understanding the downside of bonds, especially in our volatile economic climate, can be challenging.
If you're scratching your head after reading the S.E.C. warning, you're not alone. Many investors don't comprehend how bonds function, especially when interest rates rise. The S.E.C. highlights a crucial point investors should remember: when rates rise, bond prices fall. This is an inevitable relationship within the bond market, as constant and significant as the force of gravity in our physical world. However, most investors don't understand how bonds will be affected if rates increase.
Think of the relationship between interest rates and bond prices as a seesaw—picture interest rates at one end of the seesaw and bond prices at the other. When one goes up, the other comes down.
"There's a common misconception that investing in bonds is safe,
but the risk of interest rates poses a severe threat."
"There's a common misconception that investing in bonds is safe, but the risk of interest rates poses a severe threat."
Lori Schock
Director, Office of Investor Education and Advocacy
Securities & Exchange Commission
Understanding this relationship is vital right now due to the rise of interest rates, leading to falling prices. If you don’t comprehend the connection between prices and rates, you might unintentionally damage your portfolio "by reaching for yield, purchasing bonds that seem lucrative only to see rates increase, depreciating the value of your bonds," states Ms. Schock from the SEC.
Several investors are at risk of making this mistake.
Interest rates on various bonds have already significantly risen, and market analysts predict a further increase in the upcoming years. Rates are still historically low due to the Federal Reserve's policies, but understanding the situation is crucial. Remember the seesaw analogy: When yields increase, prices decrease.
Watch the video below for a full explanation.
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Meet Dennis Drake
Dennis is a nationally recognized Financial Educator, Author, Speaker and Retirement Planner, whom you may have seen or heard on WDEL radio, RVN TV, USA Today, Retirement Weekly, Street Magazine, Yahoo and others.
As the co-author of The New Rules of Retirement Savings and The No Compromise Retirement Plan, Dennis has been interviewed by Ray Loewe “The Luckiest Guy in The World” on his show Breaking the Rules where Dennis goes through his specially tailored planning process and his free special report, The 10 Elements of a Successful Retirement.
Meet Dennis Drake
Dennis is a nationally recognized Financial Educator, Author, Speaker and Retirement Planner, whom you may have seen or heard on WDEL radio, RVN TV, USA Today, Retirement Weekly, Street Magazine, Yahoo and others.
As the co-author of The New Rules of Retirement Savings and The No Compromise Retirement Plan, Dennis has been interviewed by Ray Loewe “The Luckiest Guy in The World” on his show Breaking the Rules where Dennis goes through his specially tailored planning process and his free special report, The 10 Elements of a Successful Retirement.