Interest rates have been rising – and when that happens, bond prices usually fall. How should you respond?
If your bonds have declined in value and you sell them before they mature, you could lose some of your principal. But if you hold the bonds until maturity, you will receive the same regular interest payments, unless the bond issuer defaults. Purchasing investment- grade bonds can help reduce this risk.
You could also take advantage of higher interest rates by building a “bond ladder” containing short-, intermediate-, and long-term bonds. Because a ladder contains bonds with staggered maturity dates, some bonds will always be maturing and can be reinvested at higher rates. Of course, you’ll need to be sure that a bond ladder is appropriate for your investment objectives, risk tolerance, and financial circumstances.
In any case, bonds and bond-based mutual funds can help stabilize a stock-heavy portfolio that might otherwise be subject to wild swings in value.
You do need to be aware of rising interest rates – but don’t let them keep you from making bonds a valuable part of your investment strategy.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
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