Central banks around the world have used all the tools available to them to keep interest rates near all-times lows. This phenomenon has allowed bond prices to soar to near all-time highs.
The bond mutual funds that you own in your company 401(k) retirement plan account have been great investments the last few years. Many company 401(k) retirement plan bond mutual funds are up more year-to-date than stock mutual funds. That is the good news.
The bad news is that through the end of last week, the Bloomberg Barclays Global Aggregate Index for bonds has lost just under 3% for the month of October. Global bonds have had their worst month of investment performance in six years.
Interest rates around the world are already rising. Bond traders are not waiting for an announcement from the U.S. Federal Reserve Board to protect their bond investment gains. Many bond mutual funds have their highest percentage of cash investments in the last several years.
When interest rate rise, bond prices fall. Falling bond prices in October are signaling that the limit has been reached in how low bond prices can go.
I recently wrote a blog post on October 5, 2016 about a recent Wells Fargo/Gallup survey that revealed how very little individual investors know about the correlation between interest rates and bond prices.
Take the time now to fully understand how much of your company 401(k) retirement plan account is invested in bonds. Your will continue to lose money on your bond mutual fund investment as interest rates rise.
Do what the professional bond traders are doing now. Protect your company 401(k) retirement plan bond mutual fund investment gains before the U.S. Federal Reserve raise interest rates.
Ric Lager
Lager & Company, Inc.
