A recent email from a Financial Zen Member…
“Rick,
I read this article on MarketWatch – Bond Market Sets Up For Collapse.
Should I be concerned? Thanks”
If Financial Zen manages your money and you’re nearing – or in – retirement we will invest in bonds. (It doesn’t matter if you’re 65 – or 44 like the member we started buying bonds for this week.)
When you invest in bonds – especially now – you’ll read plenty of headlines like the one above.
The obvious question: should you care?
The short answer is no because we buy actual bonds, not bond funds.
When I buy bonds in your account, you will own them until they mature.
At a pre-designated place in time, you will receive a pre-determined amount back (somewhere close to the purchase price).
The bond market has zero influence on that maturity date or maturity value. So as long as you hold them until they mature, you know exactly what you’re getting.
What if you sell them before maturity?
You don’t buy and sell bonds at the maturity price. You buy and sell them at the market price.
So if you sell them BEFORE they mature and the bond market is down, then the market price of your bonds is down too and you might lose money.
…Especially this year
When the Fed raises rates, bond yields go up. When bond yields go up, the market prices of bonds fall.
So you will 100% see headlines about the bond market tanking this year.
But we don’t care because we hold them to maturity.
Who SHOULD care
The value of the bond fund is tied to the market price of the underlying bonds. So when the bond market tanks, guess what else will? Yup – bond funds and ETF’s.
The people who need to worry are those invested in bond funds and ETF’s.
Ignore the headlines
This is a good practice for any type of investing, not just bond investing.
But you can especially ignore them this year. I got you covered.
