This is THE dilemma facing so many investors, particularly pre-retirees and retirees. We have been told since we started investing that if interest rates go up, bond prices go down…and it seems that the next move in interest rates is likely to be up.
Well, let us introduce you to an investment concept…one that is likely to impress your friends at the next cocktail party-‘Negative duration’. Now that’s a pretty sophisticated (albeit dour) sounding concept. In layman’s terms, bond portfolios with negative duration increase in value when interest rates increase…just the opposite of what we would anticipate. This could be extremely valuable to know about as we face the dilemma of investing in bonds at a time when higher interest rates are anticipated.
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