Comments on: Bond-fund charts of the day, rising-rates edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: DavidMerkel Mon, 28 Oct 2013 19:20:34 +0000 Hey Felix. You stumbled on something your friendly neighborhood quantitative analyst has known for some time. Often the best scenario for financial intermediaries is the slow rise. It allows the bank, insurer, or S&L to build income while not getting smacked with large unrealized capital losses.

Because so many intermediaries would benefit from it, is part of the reason why it almost never happens. Rates moving in anticipation of tightening Fed policy is almost never gradual.

By: TFF Sat, 26 Oct 2013 16:39:24 +0000 According to this definition, a 30-day Treasury Bill is a very safe investment. Even if rates were to rise 3% overnight (implausible), the market value would fall just a fraction of a percent.

People spend too much time worrying about the dollar value of their portfolio, however, and too little worrying about the purchasing power of the income stream they hope to generate from that portfolio. Bonds can be a very safe way of assuring a certain income stream, if laddered so that the maturity matches the needs, however they offer no guarantee of purchasing power. TIPS attempt to promise both, but at such an abysmal rate of return that nobody would ever be able to retire.

It is a mistake to focus too heavily on a single risk and to ignore the rest. Market volatility is just one way that a retirement plan can go bad, and perhaps not the most dangerous.

By: Dannupa Thu, 24 Oct 2013 03:13:05 +0000 Am I confused here or is the bottom chart not really showing “modest” increases? Even 1% per year is 10% over 10-years. That seems like a lot. 3% or 30% total sounds really high.

I guess I would be more interested in a rises for 2 years then stops view. I can imagine scenarios where yields “quickly” rise to 8-9%, but not cases where the rise continues. I think the chart would show a similar drop down in years 1-3, but then recover more quickly?