Why Bond Fluctuations Should be Ignored

Interest rates have risen this year, with a decline this week from their peak levels.

When interest rates rise, the price of bonds decline. You should not be concerned by these decreases. If rates drop, you should not get too excited by the bond price increase.

We generally purchase fixed income securities, such as bonds or certificates of deposit, for our clients to hold until maturity.

We view the fluctuation of bond prices, whether they go up or down while you hold them, as temporary.

If you hold a bond to maturity, the fluctuation should be ignored. You are not holding a bond or CD to profit from a price increase. As a bond nears maturity, the interim fluctuation gradually disappears.

You are holding a fixed income investment to earn interest and get your principal returned at maturity, which is why we purchase only high quality bonds, Treasury securities and CDs.

As interest rates have increased, when your bonds or CDs mature we will be able to reinvest the proceeds into other bonds which will pay you more interest.

While it may be natural to be concerned about the temporary decrease in the prices of your fixed income holdings, we recommend that you focus on something else.

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