Bond Ladders in a Rising Rate Environment

Posted by Chad R. O'Connell AIF

Mar 23, 2017 3:57:36 PM

With a glut of information from the financial media, many investors have heard the drumbeat of rising interest rates. Market pundits are predicting higher rates due to rising inflation expectations coupled with an economy that is slowly picking up steam. The Federal Reserve has given more credence to the pundits by increasing the Federal Funds Target Rate twice in its past three meetings, causing investors to ask, “Will my bond ladder protect me in a rising rate environment?”

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Topics: interest rates, bond ladder

An Individual Bond Ladder Versus a Bond Fund

Posted by The Dopkins Wealth Team

Mar 15, 2016 8:00:00 PM

Many investors are worried about how rising interest rates will affect their fixed income portfolio. Many believe an individual bond ladder better protects them against rising rates because they can see each bond mature. This is a common misnomer. An environment of rising rates will have a similar effect on the value of an individual bond ladder as it will with a bond fund of similar duration and credit quality. Interest rate risk is measured by duration, which measures the sensitivity of a bond’s price to a change in interest rates. For example, a portfolio with a four-year duration will lose 4 percent of its value if interest rates increase by 1 percent (or vice versa).

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Topics: fixed income, bonds; fixed income, bond fund, bond ladder, individual bond ladder

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