In early February 1982, the interest rate for 10-year U.S. Treasury bonds peaked at almost 15 percent. Since then, fixed income mutual fund investors have enjoyed a bull market in bonds.
If you have owned bond mutual funds in your company 401(k) retirement plan account over the last few years, you have not had to pay any attention at all to those investments.
A generation of falling interest rates has lead to huge investment gains in any type of company 401(k) retirement plan bond mutual fund. Bond mutual fund investors have benefitted as interest rates trended lower and values trended higher.
The last 36 years of rising bond mutual fund prices have convinced bond mutual fund investors that bonds are a ‘safe’ asset class that will never loss value.
Take a guess at how rising interest rates will affect bond mutual fund prices?
As interest rates rise, the risks to your company 401(k) retirement plan principal invested in bond mutual funds will take on an increasingly significant role.
Take the time now to review your investment management goals regarding your company 401(k) retirement plan bond mutual fund investments. You can start by taking the time to completely understand these bond mutual fund characteristics.
What kind of bond mutual funds do you currently own? What is the average duration of the bonds in your bond mutual funds? Does your bond mutual fund own corporate bonds, Treasury bonds, or both?
You can find the answers to these questions by reading the summary description of your bond mutual fund found on your company 401(k) retirement plan provider web site.
The U.S. economy appears to be nearing an economic inflection point. As the Federal Reserve signals a continued effort to raise interest rates going forward, it is very important to not allow the last several years of your bond mutual fund investment gains slip away.
You have been warned. There is no reason to lose large chunks of your company 401(k) retirement plan principal going forward because interest rates are rising.
Ric Lager
Lager & Company, Inc.
