As you know, the stock market has attracted a lot of attention – and for good reason, as we’ve seen considerable volatility almost from the beginning of the year. But if you own bonds, or bondbased mutual funds, you might also have some concerns. However, it’s important to understand why bonds should continue to be an important part of your portfolio.
To begin with, let’s look at what’s happened with bond prices recently. Inflation has heated up, leading the Federal Reserve to raise interest rates to help “cool off” the economy. And rising interest rates typically raise bond yields — the total annual income that investors get from their “coupon” (interest) payments. Rising yields can cause a drop in the value of your existing bonds, because investors will want to buy the newly issued bonds that offer higher yields than yours.
And yet, despite this possible drop in their value, the bonds you own can still help you make progress toward your financial goals. Consider these benefits of bond ownership:
