This past summer, we may have seen the warning we needed when it comes to the portion of your portfolio in bonds. Interest rates can’t go down any more, they can only go up. This could result in the value of your current bond holdings going down. This is discussed as “The Great Rotation”. Investors who flocked to bonds in 2008 and 2009 are now starting to rotate to stocks. On the surface, many investors think it’s time to drop bonds altogether.
And it’s not just investors thinking this way. Many of the top financial institutions agree (great chart on that here)
When the consensus is that bonds will be a weak investment, it’s easy to jump on the band wagon. But markets often do exactly the exactly opposite of what you would think.
Instead of following the heard, perhaps investors should simply review their bond holdings and look to upgrade the quality of the funds. Not all bonds or bond funds will be affected by rising interest rates the same way –something the chart and most investors don’t follow.