Fed Raises Interest Rates and Signals Additional Increase in 2018

[HeartachesNhangovers]

7. Is that true?

If you buy a bond, the issuer agrees to pay a certain interest rate at certain intervals (the coupon) and then, after the bond matures, you get the par value. No matter what happens to interest rates, none of this changes: the coupon value, maturity period and par value remain the same.

Your bond value declines only if you try to sell it before it matures, in which case you aren't a bond investor (who wants regular payments and then the par value), you are a bond speculator (who bought a bond at a certain price and wants to sell it at a higher price).

I'm principally a bond investor. I only invest in bond mutual funds that hold many different bonds with different interest rates, maturities and par values; I don't invest in individual bonds. I've read several analyses that show (using historical data from increasing-interest-rate periods) that even when interest rates are going up, someone who invests in bond mutual funds might lose money if they try to sell their funds, but if they simply hold them for the long-term, within 2 or 3 years they come out ahead because even the old, lower-interest bonds continue to pay and the new bonds that the fund buys are at a higher interest rate so your dividends go up, eventually making up for whatever hit your bond fund price took.

Bottom line: If you invest long-term in bonds or bond funds - invest, not speculate - you come out ahead, even in an increasing interest-rate environment.