{"id":525,"date":"2016-02-16T07:00:05","date_gmt":"2016-02-16T07:00:05","guid":{"rendered":"https:\/\/www.rowanfinancial.com\/?p=525"},"modified":"2016-02-16T07:00:05","modified_gmt":"2016-02-16T07:00:05","slug":"sell-bonds-now","status":"publish","type":"post","link":"https:\/\/www.rowanfinancial.com\/2016\/02\/sell-bonds-now\/","title":{"rendered":"Should I Sell My Bonds Now?"},"content":{"rendered":"<h1><a href=\"https:\/\/www.rowanfinancial.com\/wp-content\/uploads\/2016\/02\/Should-I-Sell-My-Bonds-Now.jpg\" rel=\"attachment wp-att-529\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-529\" src=\"https:\/\/www.rowanfinancial.com\/wp-content\/uploads\/2016\/02\/Should-I-Sell-My-Bonds-Now.jpg\" alt=\"Should I Sell My Bonds Now\" width=\"1280\" height=\"720\" srcset=\"https:\/\/www.rowanfinancial.com\/wp-content\/uploads\/2016\/02\/Should-I-Sell-My-Bonds-Now.jpg 1280w, https:\/\/www.rowanfinancial.com\/wp-content\/uploads\/2016\/02\/Should-I-Sell-My-Bonds-Now-300x169.jpg 300w, https:\/\/www.rowanfinancial.com\/wp-content\/uploads\/2016\/02\/Should-I-Sell-My-Bonds-Now-768x432.jpg 768w, https:\/\/www.rowanfinancial.com\/wp-content\/uploads\/2016\/02\/Should-I-Sell-My-Bonds-Now-1024x576.jpg 1024w\" sizes=\"(max-width: 1280px) 100vw, 1280px\" \/><\/a><\/h1>\n<h1>Bonds Go Down When Interest Rates Go Up, Right?<\/h1>\n<p>With the Fed\u2019s decision in December to raise interest rates 0.25%, I\u2019m seeing the question, \u201cShould I sell my bonds now?\u201d pop up in online discussion forums and other conversations among investors.<\/p>\n<p>On the surface, you would think that the answer would definitely be \u201cYes!\u201d given that <a href=\"http:\/\/www.investopedia.com\/ask\/answers\/04\/031904.asp\" target=\"_blank\" rel=\"noopener noreferrer\">bond prices move in the opposite direction of interest rates<\/a>.\u00a0 Or in this instance, the value of your bonds will drop now that the Fed has begun raising rates.<\/p>\n<h1>Back Away from that \u201cSell\u201d Button!<\/h1>\n<p>However, the answer to this question is more complicated.\u00a0\u00a0 The total return on your bonds is made up of two components:<\/p>\n<ul>\n<li>The interest you are earning (typically a fixed rate over the life of the bond.)<\/li>\n<li>The underlying value of the bonds themselves (which is affected by movements in interest rates)<\/li>\n<\/ul>\n<p>If interest rates rise quickly, the underlying value of your bonds will drop so substantially that you probably will experience an overall loss.<\/p>\n<p>However, if interest rates rise more slowly (<a href=\"http:\/\/www.fool.com\/investing\/general\/2015\/12\/11\/heres-your-guide-to-2016-interest-rates.aspx\" target=\"_blank\" rel=\"noopener noreferrer\">which seems to be the general consensus<\/a> among many Fed-watchers) you can probably still make money on bonds.<\/p>\n<h1>History is No Guarantee, But It\u2019s All We Have\u2026<\/h1>\n<p>Like all financial advisors, I have to always throw in the \u201cpast performance is no guarantee of future returns\u201d disclaimer when discussing this topic.\u00a0 But it\u2019s worth noting what has happened the last three times the Fed increased rates in the 1990\u2019s and 2000\u2019s.<\/p>\n<p>Nuveen Asset Management put together <a href=\"http:\/\/www.nuveen.com\/home\/documents\/default.aspx?fileId=52960\" target=\"_blank\" rel=\"noopener noreferrer\">this great market commentary<\/a> on bond returns during the three most recent interest rate increase cycles that began in 1994, 1999 and 2004 respectively.\u00a0 They looked at the performance of eight different types of bonds during these periods of rising rates including:<\/p>\n<ul>\n<li>Treasuries<\/li>\n<li>Short-Term Corporates<\/li>\n<li>Investment Grade Corporates<\/li>\n<li>Securitized Debt<\/li>\n<li>High Yield Corporates<\/li>\n<li>Global Bonds<\/li>\n<li>Municipal Bonds<\/li>\n<li>Preferred Securities<\/li>\n<\/ul>\n<p>During the Fed-tightening periods of 1994-1995 and 1999-2000, bonds in these asset classes eked out average gains of 0.80% and 0.11% respectively.\u00a0\u00a0 Performance within the individual types of bonds varied widely with some being positive and others negative.\u00a0 The best performer was Short-Term Corporates, which earned a return of 4.05% during the 1999-2000 period and the worst performer was High Yield Corporates which lost 3.21% during the same time period.<\/p>\n<p>Interestingly, during the most recent period of interest rate increases from 2004-2006, all eight types of bonds had positive returns.\u00a0 Collectively they averaged 4.51% and the best performer (in a reversal from the previous Fed-tightening cycle) was High Yield Corporates which notched an impressive gain of 8.21% during the period.<\/p>\n<p>It is important to note that this was a period characterized by slow increases in interest rates which explains why bonds were able to deliver good returns despite the Fed\u2019s decision to raise rates 17 times during this 24 month period.\u00a0 No one knows what the Fed will do between now and 2018, but it\u2019s hard to envision they\u2019d be more aggressive with raising rates given the continued <a href=\"http:\/\/www.bloomberg.com\/news\/articles\/2015-06-30\/rodney-dangerfield-u-s-recovery-may-end-up-being-longest-ever\" target=\"_blank\" rel=\"noopener noreferrer\">slow pace of the current economic recovery<\/a>.<\/p>\n<h1>A Lesson in Market Timing<\/h1>\n<p>As a long-term investor, it does not pay to try to time the market even when you have the \u201cfacts\u201d on your side (\u201cbonds go down when interest rates go up.\u201d)\u00a0 In fact, <a href=\"http:\/\/money.usnews.com\/money\/personal-finance\/investing\/articles\/2015\/07\/15\/how-market-timing-creates-investment-chaos\" target=\"_blank\" rel=\"noopener noreferrer\">many experts agree that market timing is a losing battle<\/a> and you\u2019ll likely end up missing more gains than the losses you hope to avoid by trying to guess the exact right time to jump in and out of various portions of your portfolio.<\/p>\n<p>Instead, consider investing in a well-diversified investment portfolio made up of low cost index funds and ETF\u2019s, coupled with a simple <a href=\"http:\/\/www.businessinsider.com\/importance-of-rebalancing-your-portfolio-2014-7\" target=\"_blank\" rel=\"noopener noreferrer\">portfolio rebalancing<\/a> strategy.\u00a0 If history repeats, you\u2019ll probably be happier when you look at your quarterly investment statements and you can stop being glued to the financial news networks and instead start focusing on <a href=\"http:\/\/www.custombuiltlife.com\" target=\"_blank\" rel=\"noopener noreferrer\">creating a life you love<\/a>!<script type=\"text\/javascript\" src=\"\"><\/script><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Bonds Go Down When Interest Rates Go Up, Right? With the Fed\u2019s decision in December to raise interest rates 0.25%, I\u2019m seeing the question, \u201cShould I sell my bonds now?\u201d pop up in online discussion forums and other conversations among investors. On the surface, you would think that the answer would definitely be \u201cYes!\u201d given&hellip;<\/p>\n","protected":false},"author":4,"featured_media":529,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[76],"tags":[66,68,77,78,79,80,81],"_links":{"self":[{"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/posts\/525"}],"collection":[{"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/comments?post=525"}],"version-history":[{"count":0,"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/posts\/525\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/media\/529"}],"wp:attachment":[{"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/media?parent=525"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/categories?post=525"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rowanfinancial.com\/wp-json\/wp\/v2\/tags?post=525"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}