The Bond Market Could Be The Death Nil To Your Retirement Fund
For investors who ran towards the bond market after the financial crisis and hung on for dear life to these supposed “safe haven” investments, the reality of the performance of the bond market the last couple months has been a bitter pill to swallow. In fact the current bond market is the worst we have seen since 2004. For retirees and those looking for safety of principal, the current trend could mean a total revamping of their investment strategies to maximize profit potential and try to keep safety of principal.
Why Is A 1% Rise In Interest Rate Is Problematic For The Bond Market?
The current yield on the 10-year treasury is right around 3%. This is the highest yield on the benchmark interest rate metric since July of 2011. Back in May the yield was 1.90%, in just four months that 1% interest rate spike caused a 52.5% increase in the metric, which caused bond prices to fall as the yield jumped. Bond yields and bond prices are inversely proportionate. Anytime the yield climbs, prices fall, and investors suffer. This is the reason why the bond market is having such a tough year, comparable to 1994. Unfortunately, in comparison to 1994 there are many more fixed income investors who are reliant upon bond market performance to fund their retirement plan.
Are U.S. Treasury Bonds Really Low-Risk Investments?
For retirees and those nearing retirement, the appeal of the bond market has been the promise of low-risk assets that have protection of principal. Unfortunately, for most, these bonds have given small or even negative returns that have been damaging to that retirement nest egg. One example of a bond investment gone badly is the popular IShares Barclays 20+ year treasury bond. This bond is currently yielding 2.90%. For investors, since May this yield is the equivalent of a 15% loss in the price of the bond. The bigger concern, is that with so many currently invested in the bond market. If the bond market woes begin making headlines it could cause a mass exodus out of the bond market causing prices to fall even further.
So What’s A Retiree to Do For A Safe Haven Investment?
If you can resonate with the discouragement in finding a truly “safe” investment vehicle for retirement, you’re not alone. In today’s still relatively low interest rate environment, most of the safe investments are not offering returns great enough to keep up with inflation, which is damaging to a portfolio. Thus, many have sought riskier investments in exchange for greater profitability. For more information on investment options available to you as a future or current retiree, speak to a Redhawk Wealth Advisor near you today.