Should You Own Bonds When Interest Rates Rise?
August 24, 2022 | View PDF
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 article was written by Edward Jones for use by your local Edward Jones Financial Advisor.Edward Jones, Member SIPC