Rushville Republican

Business

August 25, 2012

Humphrey: Don't fret over changing bond prices

RUSHVILLE — When you own stocks, you know their prices will always fluctuate. To help ease the effects of this volatility on your portfolio, you could add other types of investments, such as bonds. Yet bond prices will also rise and fall. But there may be - in fact, there should be - a big difference in how you view the ups and downs of stocks versus those of bonds.

Any number of reasons can cause stock prices to go up or down. But in the case of bonds, prices go up and down largely, though not exclusively, for one reason: hanges in interest rates. Suppose you purchase a bond that pays 4 percent interest and then, a year later, newly issued bonds pay 3 percent. You could now potentially sell your bond for more than its face value because it provides more income to investors than the new bonds. Conversely, if newly issued bonds pay 5 percent interest, the value of your existing bond would drop because it's unlikely that someone would pay full price for a bond that provides less income than newer bonds.

When you own stocks, or stock-based investments, you want their price to rise because you probably plan on selling those stocks someday - and you'd like to sell them for more than you paid for them. But it's not so cut-and-dried with bonds. While some people may indeed purchase bonds in hope of selling them for a profit before they mature, many other investors own bonds for other reasons.

First, as mentioned above, owning bonds can be a good way to help diversify your portfolio. Second, and probably more importantly, people invest in bonds for the income they provide in the form of interest payments. And here's the good thing about those interest payments: They'll always continue at the same level as long as you own your bond, except in the rare case of a default. (Although defaults are not common, they can occur, so you do need to take a bond's "credit risk" into account before investing.) Thus, if you plan to hold your bonds until they mature, you don't have to worry about a possible drop in their value. But if you need to sell your bonds before they mature, the price you receive will depend on current interest rates.

You can't control or predict interest rates, but you can help soften their impact on bond prices by building a "ladder" of bonds with varying maturities. Then, if market interest rates rise, you can sell your maturing short-term bonds and purchase new ones at the higher rates. And if market rates fall, you'll still have your longer-term bonds working for you at higher rates. (Usually, but not always, longer-term bonds pay higher rates to compensate investors for incurring inflation risk over time.) Keep in mind, though, that the investments within your bond ladder should be consistent with your investment objectives, financial circumstances and risk tolerance.

Whether you own your bonds until maturity or build a bond ladder, you can do something to protect yourself from price movements. And that type of control can prove valuable to you as you chart your course through the investment world.Ê

Brian Humphrey is a financial consultant and investment advisor.

1
Text Only
Business
  • Student business competition announces finalists, Demo Day presentations WEST LAFAYETTE - Three Purdue University student-based startups have advanced to the final round of the Boiler Mini-Accelerator Competition or "Boiler," where they will compete for nearly $10,000 in funding. The Boiler, a student-run business competi

    March 28, 2014

  • Congressman Messer honors training program Congressman Luke Messer has made it a matter of Congressional Record that he strongly supports the Manufacturing Matters fast track training program in Rush, Wayne, and Fayette counties. In the Congressional Record dated Feb. 25, 2014, he congratulat

    March 14, 2014

  • bus-rv022814-citizens bank pic Citizens State Bank recognizes 2013 award winners Citizens State Bank held their annual employee awards presentation on Feb. 17, 2014, at a companywide training day. The Pendleton branch was awarded Branch of the Year for their overall performance. Employees from this branch are Alexa Chamberlin, St

    February 28, 2014 1 Photo

  • Wal-Mart offers weak outlook on sales shortfall NEW YORK (AP) - Much like its low-income shoppers, Wal-Mart can't seem to catch a break as the U.S. economy rebounds. The world's largest retailer on Thursday posted a 21 percent drop in fourth quarter profit and gave a subdued forecast for the curre

    February 21, 2014

  • bus-rv011014-gburg Honda logo Honda Greensburg Plant and plants in Ohio perform in top 25 percent GREENSBURG - For the second year in a row, Honda's Greensburg automobile plant earned the U.S. Environmental Protection Agency's (EPA's) ENERGY STAR certification. The ENERGY STAR certification is given to facilities that perform in the top 25 perce

    January 10, 2014 1 Photo

  • Edward Jones ranks No. 1 in survey GREENSBURG -- For the 19th time, the financial-services firm Edward Jones ranked No. 1 in the WealthManagement.com./ REP. magazine annual survey of the nation's six largest financial services firms, according to the following Edward Jones financial a

    December 20, 2013

  • Local tax abatements may cause higher property tax rates overall MUNCIE - Communities are using tax abatements to spur business expansion or attract new firms, but the process may be the cause of higher property tax rates overall and cost millions in lost tax revenue, says a new report from Ball State University.

    December 6, 2013

  • INFBPW/Knightstown November meeting INFBPW(Indiana Federation of Business & Professional Women's Clubs, Inc.) Knightstown had the November meeting at Sugarbakers in Knightstown on Nov. 18 with Jackie Woolard, PSP as hostesses. Tina Williams, president, presided at the meeting. INFBPW/K

    December 6, 2013

  • bus-rv112913-ECDC pic Rush County ECDC aids local business The Rush County Economic and Community Development Corporation recently assisted Carthage Mill, LLC with a Small Business Loan Program loan to assist them in opening a sustainable agriculture business incubator with a focus on rural development certi

    November 29, 2013 1 Photo

  • Better Business Bureau encourages small businesses support INDIANAPOLIS - For the fourth year in a row, the Better Business Bureau is supporting Small Business Saturday┬« on Nov. 30. Small businesses are the cornerstone of any community, creating jobs, spurring local economic growth and giving back to society

    November 29, 2013

Featured Ads
AP Video
Raw: Orthodox Christians Observe Easter Rite Ceremony Marks 19th Anniversary of OKC Bombing Raw: Four French Journalists Freed From Syria Raw: Massive 7.2 Earthquake Rocks Mexico Captain of Sunken SKorean Ferry Arrested Raw: Fire Destroys 3 N.J. Beachfront Homes Raw: Pope Presides Over Good Friday Mass Raw: Space X Launches to Space Station Superheroes Descend on Capitol Mall Man Charged in Kansas City Highway Shootings Obama Awards Navy Football Trophy Anti-semitic Leaflets Posted in Eastern Ukraine Raw: Magnitude-7.2 Earthquake Shakes Mexico City Ceremony at MIT Remembers One of Boston's Finest Raw: Students Hurt in Colo. School Bus Crash Raw: Church Tries for Record With Chalk Jesus Raw: Faithful Celebrate Good Friday Worldwide Deadly Avalanche Sweeps Slopes of Mount Everest Police Arrest Suspect in Highway Shootings Drought Concerns May Hurt Lake Tourism
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.