OK, third-quarter report cards are in, and investors want to know how they did. But perhaps just as important, they want to know the WHY behind the performance. When it comes to mutual funds and ETFs, there’s a better way to go, especially when it comes to choppy markets, which have been tough as of late. Why are bond prices down? Because interest rates have risen just a tiny bit, and bond prices move in the opposite direction of rates.
Over the quarter, especially the last few weeks or so, interest rates have risen enough to lower prices for bonds this quarter. But we’re talking about a tiny increase in rates, not a huge move which would be more concerning. What will happen if rates really kick higher? You can bet some bond investors will head for the exits as they always do.
You don’t want to be stuck investing in products where you could be the victim of a huge exodus. Because when you invest in mutual funds and ETFs, oftentimes your fellow passengers are huge pensions funds and endowments that have a bit of a longer runway. That’s why I want you to own your bonds outright, much like you own your own future. You decide how it will unfold.
Action Line: When you own your own bonds, you decide when to sell or when to hold until maturity. You’re not at the whim of a fund manager you’ve never met or a big-time investor who doesn’t even know you exist. If you’re concerned, it’s probably time we talk.
E.J. Smith - Your Survival Guy
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