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Watch Out for Hidden Bond Investments, Says Financial Advisor Richard Sturm
For many investors who own certain types of bonds in their portfolios, a modest rise in interest rates can spell disaster to holdings that may have been forgotten.
This was good for bond investors. Those who shifted a percentage of their investments to bonds were rewarded with a type of buffer against the free fall experienced in the stock market.
But interest rates are poised to go up, and when they do – watch out! Rising interest rates can create a shockwave through the bond market that can sharply reduce the value of your bonds.
You may own bonds and not even know it!
They can be found in your mutual funds, 401(k) investment options, and variable annuities. “The key here is to be well informed so that you can make the best financial decisions for your future”, says Richard Sturm Financial Advisor and owner of Sturm Financial (http://www.sturmfinancial.com/
Here are three steps that you can follow today to see how your portfolio might fair in a rising interest rate environment:
Evaluate your current investments
Don’t forget your 401(k) or other retirement plans, since these accounts are often overlooked by many investors. Analyze your statements for bond funds – particularly long term bond funds that can be the most sensitive to rising interest rates.
Check the Duration of Your Bond Portfolios
Duration is the amount of time it takes for a bond to be repaid by its cash flows and is a measure of the bond’s sensitivity to interest rate adjustments. For example, a duration of 6 means that for every 1% rise in corresponding interest rates, the value of your investment will drop by 6%. That can happen quickly – so it’s important to be informed if rates begin to change.
Consider Building a More Diversified Portfolio
Although diversification will not guarantee against loss, it can help to spread the risk around so that when some investments perform poorly, others can perform relatively better.
About Sturm Financial
Richard Sturm has been working in the financial services industry for over 23 years helping individuals plan, implement and manage their investment and retirement assets. Through his financial advisory practice, he assists hundreds of individuals with the process of retiring from their jobs. As a public speaker, Richard has lent his motivational style to many corporate, fraternal, and civic organizations. Among these groups, he has spoken for the Lion’s Club International, The Optimists, The Communication Workers of America, the San Bernardino Unified School District, and numerous churches and faith-based groups. Richard is registered with National Planning Corporation.
Securities and advisory services offered through National Planning Corporation
A Registered Investment Adviser
Sturm Financial and NPC are separate and unrelated companies