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What Risk Is Your Bond Portfolio? Tips To Spreading Out Your Bond Risks
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The 10 Treasury bond went up almost 1% from May 2013 to July 2013 reminding investors that these rates can’t stay low forever. Since 2006 rates have gone lower and lower. Those who had bond investments during this time have largely seen good returnssparked by rates having gone down. This is because bond prices 401k Help
go up when rates go down and vice versa.
Right nowit may not be not such a bad idea to dump your bond investments for cash or swap some out for a mixture of highyield bonds,short-term bonds, and other fixed income sectors like floating rate loans. When you do this, you are trading out some of your interest rate risk for bankruptcy risk (with high yield bonds) and lowering your potential income check (short term bonds) to preserve your principal.
Here are a few pieces of information that you can research on your bond by going to finance.yahoo.com and doing a little digging
- Average Duration
- It helps investors and advisors a bit in anticipating what fluctuations + or –a bond portfolio could take when rates rise. A 1% rise in interest rates with a 5 year average duration could make your bond fund drop by 5% . You simply multiply duration times the rise in interest rates (1 x 5)
Usually high yield bond funds hold IRA
lower quality grade bonds. You may not want to go and buy up all of the low quality bonds, but when rates riseyou may prefer to take a chance at credit risk than interest rate risk. You are basically taking more risk of a company going belly up whichcould be a good way to offset some interest rate risk.
If you don’t have your bond investments in a qualified account,(your 401k or IRA) then you may want to look at this. Pay attention to the average annual turnover compared to your investments
Well what can I say other than it is good to know the bonds you are investing in.
The information in this article are for general information only and are not intended to provide specific advice or recommendations to any individual.Please consult a financial advisor in regards to your specific situation.
Russ Dickerson is an Investment Advisor Representative with and Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA) member FINRA, SIPC and a Registered Investment Advisor.
Provest Wealth Advisors is not affiliated with TFA, Inc
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