Ask Terry Questions A Question About Bonds

A Question About Bonds

By Terry Savage on July 26, 2013 | Investments

Hi Terry!
In 2009 I invested in the Chase Core Bond Class C.
I noticed that my investment isn’t doing so well recently.
I heard that the interest rate is going up which will affect
all bond investments. Many so called experts are saying
to pull out and save your profits and principle while you can. What is your opinion? Will the interest rates continue to go up?
Your response is much appreciated.
Sincerely, Anna

SAVAGE SAYS: Anna, I have tried to explain many times that when interest rates go up, bond PRICES go down!? After all, who wants to pay? you $1,000 for your old 4% bond, if they could use their cash to buy a similar bond paying 5%? So if you want to sell, you’ll have to take a lower price. The longer term the bond, the bigger the price drop as rates go up.

I don’t quite know how to advise you on this. If you’re going to check the price every day or week, I expect rates will rise, and you will find your investment worth less. But if you sell, your alternative is low rates in a CD. Then you can wait til rates rise and buy bonds with higher yields. I personally am not holding any longer term bonds now.



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