Observations on life

Interest rates up; bond prices down … it’s a good thing

Here’s a good tip from HumbleDollar.com

TRUTHS

October 29, 2018

NO. 48: RISING INTEREST RATES hurt your bond portfolio’s value—and raise its long-run return. As rates climb, existing bonds drop in price. But thanks to the rise in rates, you can reinvest your interest payments at higher yields, boosting long-run performance. This reinvestment is easy with bond funds—a reason to favor them over individual bonds.

And it works for tax – free municipal bond funds too. And while you reinvest at higher yields you are also accumulating more shares of your fund.

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