Hi Terry: With the downturn in the bond market due to the election and the fed increasing the interest rate, I moved my investments in my bond mutual funds into money market funds. But I do not know when I should return into binds. Do you have any suggestions?

Terry Says:

Oh that’s pretty easy.  You should move back into bonds when interest rates are at their peak — just before they start to fall!

When rates fall, those high yielding bonds will gain in value.  Just as when rates rise, bond prices fall because no one wants your older, low-yielding bonds.  And that applies to all bonds:  government bonds, corporate bonds, municipal bonds — no matter what the qualify.  When rates rise, bond prices fall.  And the longer the maturity date of the bond, the larger the price decline.

So there you have your answer.  Yes, I completely understand that it is VERY tough to decide when interest rates have peaked and are about to fall.  Just as it is tough to decide when stocks have peaked!   This is the market risk shared by both stocks and bonds:  prices can fall.  The only consolation with bonds — good bonds — is that at least you get paid some interest while you wait for a recovery.  With stocks you have to count on dividends.  And interest on a company’s bonds is paid before dividends on common stock.