Why Own Bonds in a Rising Rate Environment? | American Funds

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Investment Insights

November 2015

Why Own Bonds in a Rising Rate Environment?

A portfolio manager discusses reasons to own bonds in a rising rate environment in the context of investor objective.



Wesley Phoa, PhD.


Wesley Phoa: if you’re a long-term investor, you have to remember that you are constantly reinvesting bond coupons, bond maturities. If rates are trending higher, you’re reinvesting them at higher rates, and so the returns that you end up getting look not as bad as you might have expected. So that’s something to bear in mind.

But whether or not it makes sense to own bonds — whether or not bonds have a place in your portfolio — depends on what they’re for. If you’re owning bonds for income, then what we find now is that looking beyond the Treasury market, there are still many different attractive opportunities that let us put together a very diversified portfolio of bonds that is going to help deliver investors’ income objectives. And if the purpose of owning bonds for you is safety — if it’s to be an anchor in an increasingly volatile market environment — then yes, absolutely. I think bonds will continue to deliver that, that if you pick the right bond investments — if they’re suitably conservative bond investments — then they’ll continue to be that safe haven which plays a role in a lot of investors’ portfolios.

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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.