Most people don’t think too much about their bonds. They really are the boring foundation for your portfolio. However, occasionally they spring to the surface, and this is one of those times. Lately, a number of people have been wondering why they should be investing in bonds, since we’re obviously in a period of rising interest rates.

One of the first things that finance students learn is that bond prices (and therefore bond returns) are inversely related to interest rates. Considering that all else is equal, when interest rates are going down, bond prices will go up, and when interest rates are going up, bond prices will go down. This isfundamental to how finance works, and this raises the obvious question of why you would want to hold bonds when rates are rising – why would we choose to lose money?

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Written By: Bob French, CFA

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