Rates have gone up, and bond prices have gone down, since the election
Over the past several weeks, interest rates have moved up significantly. Higher interest rates are a reflection of a stronger US economy and renewed optimism on the part of investors.
When interest rates rise, the market price of bonds, and mutual funds that invest in bonds, goes down. These market price fluctuations are temporary, and investors will eventually receive their principal when the bonds mature.
Rising rates aren’t necessarily a bad thing.
History shows us that average interest rates in the 3% to 5% range are quite normal, and that the past few years of zero interest rates have been very unusual. It is likely the Federal Reserve will increase interest rates in the short term.
Interest rates may change, but the reason to own bonds does not.
Academic research shows that the biggest factor that impacts investment returns is asset allocation. Choosing the right mix of stocks and bonds provides better returns with less risk. Our philosophy is to invest for the long term, and to ignore short-term market fluctuations. This philosophy is just as applicable in a rising-interest-rate environment as it has been during the past decades of declining interest rates and near-zero interest rates.
Interest rates may change, but the reasons to own bonds does not. Having the right mix of stocks and bonds over the long term is more important than short-term trends. We believe that it is important to take the right risks in the right places so you can achieve your long-term financial goals.
As always, if you have questions or concerns, feel free to contact us. We appreciate the opportunity to help you chart your financial course. Steady as You Grow™!
Peter C. Golotko, CPA/PFS, MBA Chief Executive Officer