Even with 6% yields, you can’t just set and forget it
It sounds like a no-brainer for retirees in today’s 6% world: Lock into a high interest rate for as long as possible and go play golf.The economy has a few more bumps in store for you, because for every “up” in financial markets, there’s a correlation that drags something else down. To wit, as bond yields go up, bond prices go down, which is what we’re experiencing now. But as interest rates go down, if that follows predictions, there will be repercussions, too.
“Some of the angst is stemming from the fact that the fixed-income portfolio has been getting hurt the last two years — 2022 was down significantly, and this year is similar negative total returns,” Woodside says. If you’re closer to retirement, maybe you don’t want to be exposed to higher duration, and maybe you want to avoid callable structures.
“Bonds are complex tools. Equities are complex too, of course, but most people know about buying Apple stock and getting a dividend. But with bonds, they aren’t very sure,” says Devin Pope, a certified financial planner with Nilsine Partners in Salt Lake City. “It’s a paper loss — as long as it doesn’t default, and we’re not talking about junk bonds here,” says Pope. “You’ll get your money back, and we know there will be a positive return because of the yield. This is where there’s some safety and security with bonds, if you hold them to maturity.”
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