Another week and another financial services industry firm survey. I have written before about the danger of rising interest rate in bond mutual fund investments. This survey puts some real life numbers on the danger.
Edward Jones published their survey of 1,008 Americans. The survey was done over the telephone between July 26 and July 29, 2013.
The results of the survey stated that 63% of people did not know how rising interest rates would affect their retirement plan accounts like IRA’s, and company 401(k) retirement plan accounts.
In another survey question, 24% of the respondents stated that they feel completely in the dark about the potential effects of rising interest rates.
This summer interest rates have risen to levels not seen in several years. As expected, bond mutual funds prices have tumbled.
The results of this Edward Jones survey clearly show that the vast majority of retirement plan investors don’t understand the correlation between rising interest rates and falling bond mutual fund prices.
U.S. Treasury bonds and similar government bond mutual funds are not risk free investments when interest rates rise.
Bond mutual funds lose principal value when interest rates rise. The principal value of a bond mutual fund goes down when interest rates rise.
Go online and look at the current value of your IRA or company 401(k) retirement plan account value. Compare your current account value to the value of that same account on June 30, 2013.
The more bond mutual funds you have owned this summer, the lower your retirement plan account value has dropped.
I have no idea where interest rates go from here. They may continue to rise, or they may fall back down to new all-time low levels. Either way, you have to put in place a plan to preserve the bond mutual fund investment that you currently own.
It does no good to get a 4% dividend if you lost 10% of your retirement plan account value.
Ric Lager
Lager & Company, Inc.
