One of the great resource that provides sound wealth advice from America have been a blog called A Wealth of Common Sense and Ben Carlson wrote a good piece that I would like to bring to your attention.
Ben talks about how often the narrative when it comes to rising interest rates means holding bonds is not cutting away the cancer when the story seldom put enough light on the lower volatility nature, total return, and the role in a portfolio:
What resonates with me the most is this paragraph:
This is one of the reasons that average investors (and let’s be real, many professionals) are so confused about the mechanics of bonds. Yes, rising interest rates means lower bond prices. But it doesn’t necessarily mean lower bond total returns. Remember, to earn better long-term returns in bonds we need to see higher interest rates eventually. When yields rise you start to earn more income. That’s a good thing.
Some time ago, I try to bring to light the need to have the same focus on total return, instead of just looking at bond prices. (Read it here)
If the newly release bonds are going to be higher yielding (and not just in theory) then a bond fund or ETF, with a mandate to keep till maturity and using the proceeds to buy a higher yielding bond should give you a higher interest yield over time, thereby giving a good total return.
Its a good read and I urge you guys and gals to read it and not just think “oh shxt! interest rate is going to rise from 0% to 15% and my bonds are going to be worthless!”
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