It's only a bond rout if you sell: Vanguard

Short-term paper losses can likely be offset by reinvesting at higher rates

Feb 12, 2013 @ 2:18 pm

By Jason Kephart

Advisers have bigger things to worry about than the short-term shellacking bond portfolios will take if interest rates go up.

At least, that's the take of Joel Dickson, a senior investment strategist at Vanguard Group Inc. “It's not clear that rising interest rates are detrimental to long-term returns,” Mr. Dickson said in an interview at IndexUniverse's Inside ETFs Conference.

Yes, rising interest rates might result in immediate losses, with a 100 basis points move up inciting a 4 to 5% loss in an intermediate-term bond mutual fund. But over a longer time frame, Mr. Dickson said, the benefits of reinvesting at higher rates could offset the short-term losses.

Although it's easy to fear short-term losses, investors might find themselves in trouble if they don't keep to a long-term plan. “The behavioral reaction to the short-term losses is the real risk,” Mr. Dickson said. “There's the potential to make things worse by selling and locking in the loss.”

Mr. Dickson compares the potential scenario to investors who sold out of the stock market in 2008 or 2009 and consequently missed out on the stock market's return to pre-financial crisis levels.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Dynasty's Penney: The professionalization of the RIA industry

The RIA profession is evolving rapidly, but why and how? Shirl Penney of Dynasty Financial examines how the industry is growing and consolidating and what's next.

Latest news & opinion

Small broker-dealers seek legislative relief from annual audits

Bills introduced in House, Senate would remove PCAOB requirement.

Meet our new 40 Under 40s

For a fifth year, InvestmentNews is proud to shine a spotlight on the amazing accomplishments and potential of top young financial professionals.

Merrill re-evaluates commission ban in retirement accounts

The wirehouse's wealth management group announces a fresh look at the ban now that the DOL rule is on the brink of death.

10 biggest retirement mistakes

Adhere to enrollment deadlines and distribution rules or pay a hefty penalty.

DOL fiduciary rule on brink of death as key deadline passes

Justice Department didn't petition the Supreme Court to rehear the case. A mandate from the 5th Circuit would finally lay the fiduciary rule to rest.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print