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

A bond’s coupon rate vs. yield to maturity— know the difference?

Posted by The Dopkins Wealth Team

Jun 8, 2015 2:00:00 PM

The coupon rate tells you the annual amount of interest paid by a fixed income security. For example, a Treasury bond with a coupon rate of 5 percent will pay you $50 per year per $1,000 of face value of the bond. The coupon rate, however, tells you very little about the yield. For most securities, the yield is a good proxy for the return of the fixed income security (that is, how much you can expect your wealth to increase if you purchase the security) and is far more meaningful than the coupon rate. To illustrate, consider these two Treasury bonds:

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Topics: fixed income, bonds, dwm, bonds; fixed income, securities

What are TIPS and how do they work?

Posted by The Dopkins Wealth Team

Nov 14, 2014 12:03:36 PM

Similar to nominal (non-inflation-adjusted) U.S. Treasury fixed income investments, TIPS (Treasury Inflation Protected Securities) are issued with fixed coupon rates and fixed maturity dates (such as five, 10 or 20 years). The key difference between TIPS and nominal bonds is that the coupon rate for TIPS is a guaranteed “real” (inflation-adjusted) return. The principal is adjusted for inflation before the interest payment is calculated. With TIPS, the coupon payments and face value will maintain purchasing power until maturity.

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Topics: fixed income, bonds, bonds; fixed income

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