Home/Marsh News/What's Hiding in your Bond Portfolio?
Let's say you own a $100,000 bond paying 3%. But then you retire and need to sell some of that $100,000 bond to live on. But interest rates have risen to 5% since you bought it, and now your 3% bond isn't as valuable because other companies are paying 5%. So you have to sell your $100,000 bond for less than you paid for it.
In retirement we sell investments – either because we need the income, or because the IRS comes knocking at age 70 1⁄2 and forces us to sell IRA investments to satisfy the annual withdrawal rules. Look ahead 5 and 10 years. If you think interest rates will be higher, you'll be looking at bond losses.
Choosing the right bond mix for your portfolio is paramount. Finding the balance between the length of maturity, the yields, the credit quality and the inherent interest rate risk needs deliberate thought and strategies.