Point View WealthPoints

Fear of Rising Rates? Remember The Reason You Own Bonds

Donna St.Amant, MBA, Portfolio Manager.

If the current interest environment has you concerned about your bond portfolio, remember why you are investing in bonds.  The role bonds, or fixed income, play in a portfolio is not solely based on performance.  Bonds are used to offer stability, particularly when stock market volatility is rising. Rate hikes can dampen bond performance, but keep perspective on how rising rates impact your investments over the long haul.

Generally speaking higher rates are better for long term bond investors.  Higher rates equal higher income opportunities, allowing investors to offset price declines with the income paid by a portfolio’s fixed income investments. Another point to consider is if the Fed is gradually raising rates, and inflation is only modestly increasing, this is a signal that the economic outlook is strong and healthy.  Fed rate increases go along with a robust job market.

Portfolio investment is not only about the return.  Return is important, but for many investors capital preservation is equally important.  Investors fear losses more than they enjoy gains.  The goal is to achieve a portfolio balance so that the downside is not too excessive.  Although your bond portfolio may not be making you much money, it is an important component in protecting principal and limiting sharp declines. Further, if you hold bonds to maturity, the yield at which you purchased the bond will hold true regardless of the direction market yields are moving. Absent a default by the bond issuer, the yield to maturity will remain constant and your principal is protected.

Sign Up for E-News

Bonds offer three types of benefits to an investment portfolio: diversification, stability and income.  

Diversification. Fixed income investments are an important component of any diversification strategy.  A portfolio owning different types of stocks and bonds is more likely to perform better over time with less volatility. Based on risk appetite and long term goals, maintain a balance between stocks, bonds and cash. Select bond holdings across different sectors and maturities. Reduce exposure to those bonds maturing beyond ten years.  Diversify your stock positions across sectors and add international exposure.  International stocks typically outperform during a U.S. Fed tightening cycle. 

Stability. Bonds provide stability by helping to offset potential downturns in stocks, in part because their prices tend to rise when equity prices fall. Even if this does not hold in all market scenarios, they still provide a steady stream of income that will help to stabilize a portfolio's performance when other assets are declining. Returns can move in the opposite direction from stocks where the bond increases help to offset equity market losses. However, bonds don’t always show that kind of performance, especially during a period of rising rates.  That doesn’t mean they are not doing their job.  Even if bond returns are down, the magnitude of losses in bonds versus stocks is historically much less.   

Income. No matter which direction bond prices are moving, the income you receive continues.  A quarter point rate increase by the Federal Reserve won’t substantially impact investment returns. However, after a series of rate hikes and a trend of rates moving higher, it can be a drag on near term performance.  As rates rise, bond prices decline, and investors may see losses on their bond positions. While seeing unrealized losses in the bond portfolio is never pleasant there are a few points to keep in mind.

It is important to look at the total return of the bond. The unrealized gain shown on a statement does not reflect the income paid semiannually on a bond or dividends paid monthly by a bond fund. This steady stream of income is adding to the bottom line and enhances performance.

Furthermore, because this income stream continues until maturity, the bond holder is locking in the yield at which the bond was purchased.  The downside is that as interest rates continue to move higher, there will be missed opportunity to buy bonds at the new higher rates. For that reason, it makes sense to ladder a bond portfolio by owning bonds with different maturity dates so that bonds mature over consecutive intervals, providing the investor liquid funds to invest as rates move higher. 

Don’t fear the rate hikes. It shows that the economy is healthy and it allows fixed income investors to lock in higher rates for long term investing.

Note: Donna St.Amant, MBA, is a Portfolio Manager at Point View Wealth Management, Inc., a registered investment advisor at 382 Springfield Ave., Summit.

For 25 years, Point View Wealth Management, Inc. has been working with families in Summit and beyond, providing customized portfolio management services and comprehensive financial planning, to develop and achieve their financial goals.  Click here to contact David Dietze, John Petrides, Claire Toth, Donna St.Amant, and Elaine Phipps, or call 908-598-1717 to learn more about Point View Wealth Management, Inc. and how we can help you and your family meet your financial objectives. To sign up for our complementary commentaries and newsletters, e-mail us at firm@ptview.com.

CNBC has named Point View one of the Top 100 fee-only wealth managers in America.

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News


Upcoming Events


Sun, May 27, 8:00 AM

Summit Summer Farmers Market, Summit

Summit Farmers Market

Community Calendar Food & Drink Green Health & Wellness


Thu, May 31, 11:30 AM

Canoe Brook Country Club, Summit

Fortnightly Club Scholarship Luncheon

Food & Drink Giving Back


Thu, May 31, 1:30 PM

Coppola Ristorante, New Providence

Lunch and Learn: Dental Implants and the ...

Health & Wellness

Summit Police Blotter

May 17, 2018

4/24 - At 0728 hours a report was taken for a theft of two (2) sandwiches from a business on Morris Avenue. The manager reported that at approximately 0330 hours a male entered the business and removed two sandwiches from a refrigerated case. After doing so, he exited the store without paying for them. The male suspect was described as Hispanic, approximately 6’0”wearing a blue/gray ...

Video: Point View's Petrides Looks at Trade Truce Sector Beneficiaries, Opportunities

May 24, 2018

Point View Wealth Management's Managing Director and Portfolio Manager, John Petrides, on CNBC's Nightly Business Report (interview starts at 5:05 mark) discussing stocks to buy based on easing trade tensions with China.


For more than 25 years, Point View Wealth Management, Inc. has been working with families in Summit and beyond, ...

Video: Point View's Dietze Reviews Investment Strategies as Trade Tensions with China Calm

Point View Wealth Management's Founder, President and Chief Investment Strategist, David Dietze, live on FOX Business on investment strategies in the wake of the thawing of Chinese trade tensions.


For more than 25 years, Point View Wealth Management, Inc. has been working with families in Summit and beyond, providing customized portfolio ...

Stocks Can Rise in a Rising Interest Rate Environment

Investors remain concerned about the potential impact of higher interest rates on stocks. In their most recently released minutes, the Federal Reserve Open Markets Committee indicated the US economy is on solid footing and the economic conditions warrant continued gradual increasing of interest rates. This set off a sale in the stock and bond markets as investors began pricing in a fourth ...


AtlantiCast: Episode 15

On this week’s AtlantiCast, learn some important tips for controlling and avoiding diabetes from an Atlantic Health System expert, see how Atlantic Health is advancing cutting-edge research, hear what’s being done to keep health care environmentally friendly and much more!


SURVIVING A STROKE: Quick Medical Response Gives Mom Her Life Back

Carotid artery dissection. It’s one of the most common causes of stroke in younger adults.

And while you might not associate the word “stroke” with younger patients, the condition – if not treated immediately – could lead to paralysis and even death.

Lindsey Singh can attest to the importance of immediacy. The 31-year-old mother of two from Flanders experienced ...

A Royal Pain

I went to a big wedding over the weekend.  It was in England.

I like to think I was invited, but according to the Royal Guards and the Thames Valley Police I was not.  But more about that later.

You see, not too long ago I received an evite addressed to me from H&M@royalwedbot.co.uk.  Curiously, it was in my spam folder with a warning message. For an evite it was pretty ...