Interest rates have reached record lows in recent years, and the largest share of the credit goes to the Federal Reserve.This is a concern for fixed-income investors because bond prices have an inverse relationship with interest rates.Interest rates are not only the risks of fixed-income investments.
Fixed-income investors are not powerless just because a rise in interest rates is inevitable. Nor should investors abandon fixed-income assets; since these assets have a low or even negative correlation to equities, eliminating them from a portfolio increases other risks.
The techniques described here are needs to be tailored to an individual portfolio based on the investor's risk tolerance, investment and personal goals. The best way to assess total return is the bond's yield and any capital gain or loss arising from the sale.Credit quality stands as the other major risk factor for bond investors.
The strategy for dealing rising interest rates is to reduce the overall duration of a fixed-income portfolio. Short-term fixed-income investments generally offer lower yields in exchange for minimizing interest rate risk.
Fixed-income investments will remain a useful component of most portfolios.Thus investors will need to remain aware of the environment and respond with long-term planning towards their individual needs and goals.
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