In May of 2013, a small rise in interest rates highlighted the risk that bond fund investors face in their “safe” investments. The relationship between interest rates and market risk is clear. The mathematical relationship is straight forward. When interest rates rise, the value of bonds goes down. For bond funds, rising rates means that total return has to fight the headwind of losses on the underlying portfolio. As NAV declines, coupon interest generated by the bonds in the portfolio may or may not be enough to overcome the price loss. On the other hand, making the same fixed income allocation to high quality individual bonds and holding them to maturity is a clearly superior strategy when rates rise because it can protect principal and avoid losses in a way that bond funds cannot. Download the white paper >>>
In these videos, Stephen Huxley and Brent Burns of Asset Dedication sit down with Dave Littell and David Nanigian of The American College to discuss ways financial plans can be connected to investments. After creating these videos, The American College adopted many of the discussed concepts into the curriculum for their Retirement Income Certified Professional (RICP®) designation. Enjoy!
For bond investors worried about what will happen to their principal when interest rates rise, a fixed-maturity bond fund is one solution.
These products, also called defined-maturity or end-date funds, offer the diversification of a bond fund with the known maturity date of an individual bond.
Each fund sets an end date and buys bonds that mature on or shortly before then. Any new money that comes into the fund is put into the same type of bond. Interest payments on the bonds are paid out monthly to shareholders. Read More…
Join Asset Dedication in Chicago, March 18-19, 2013 where we’ll be presenting at the Retirement Income Industry Association’s Spring conference exploring the many challenges Pre-Retirees and Retirees face in getting their retirement income houses in order. To find out more click here >>>
On Tuesday, March 12, 2013 from 1:00 p.m. – 2:00 p.m. PST, Brent Burns will join other panelists and members from the InvestmentNews team to find out how much risk is lurking in fixed income and how can advisers position their clients for a rising rate environment? This webcast will look at fixed-income investing from a variety of perspectives, including individual bonds, ETFs and mutual funds. Our panelists will offer outlooks for the bond market as well as investing strategies. Click here to register >>>
Over the few months we had the pleasure of connecting with Jeff Benjamin over at InvestmentNews and started talking with him about the bond bomb that is headed investors way. In Jeff’s article, the Bond bomb survival guide he explores this issue in depth. Click here to read the article >>>
In May of 2013, a small rise in interest rates highlighted the risk that bond fund investors face in their “safe” investments. The relationship between interest rates and market risk is clear. The mathematical relationship is straight forward. When interest rates rise, the value of bonds goes down. For bond funds, rising rates means that total return has to fight the headwind of losses on the underlying portfolio. As NAV declines, coupon interest generated by the bonds in the portfolio may or may not be enough to overcome the price loss. On the other hand, making the same fixed income allocation to high quality individual bonds and holding them to maturity is a clearly superior strategy when rates rise because it can protect principal and avoid losses in a way that bond funds cannot. Download the white paper >>>
For bond investors worried about what will happen to their principal when interest rates rise, a fixed-maturity bond fund is one solution.
