Is your bond portfolio vulnerable to rising rates?

Although current interest rates are at all-time lows, eventually they could rebound.

Because the value of existing bonds tends to decrease when interest rates increase, investment portfolios overweighted to fixed-income assets could see significant losses should rates rise.

Consider investing in equities

The chart below shows how rising rates on the 10-year Treasury bond would have affected different hypothetical portfolio allocations during the past 20 years, when rates increased seven times. In those years when interest rates rose, the 100% bond portfolio returned little more than 2% on average, while the pure stock portfolio returned an average of 17%.

Adding even a small portion of stocks to a bond portfolio can increase returns significantly.


Sources: Bloomberg, SPAR, FactSet Research Systems Inc. Hypotheticals assume quarterly rebalancing.

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