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April RAGE Gauge: Are Your Bond Funds Dead or Alive?

April 2, 2021 By E.J. Smith

By Ian C Mcmillan @ Shutterstock.com

My April RAGE Gauge is in, and RISK remains HIGH. Therefore, I want you to be a mindful and cautious investor, especially with your “safe” money. Your anchor-to-windward savings need to be safe.

Life Comes at You Fast. Slow It Down with My Friday Email. It’s Free.

I’m talking specifically about bonds. Bonds are not dead, far from it. They’re alive and well, especially if you have access to new and secondary market issues. And not just letting the chips fall as they may.

Remember, bond prices swing in the opposite direction of interest rates. Their sensitivity to interest rate swings is measured by duration. As a rule of thumb, duration (measured in years) is a measure of the price decline in bonds if interest rates rise by one percent. In other words, if interest rates rise by one percent, a bond with a ten-year duration will lose ten percent of its value.

Action Line: My favored way to counter duration risk is to invest in individual bonds directly, where if rates rise, you can hold until maturity and get your principal and interest back. I also like to keep the average maturity of my bond portfolio on the shorter-term side. This gives you a foundation to pick and choose some winners that are perhaps outside of that criteria but offer tremendous VALUE.

Originally posted on Your Survival Guy.

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E.J. Smith
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris.

Please get in touch with E.J. at ejsmith@youngresearch.com

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