Investment Strategy

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After years of falling rates (specifically since the early ’80s), we are now in a rising rate environment. If you understand how bonds work, you know that when interest rates go up, the value of existing bonds decline; when interest rates decline, the value of existing bonds goes up. A good picture for bonds is a seesaw.

You have to go back over 40 years to see a worse bond market than the one we have experienced so far this year. Bonds are traditionally thought of as ballast to a portfolio. When stocks have a tough year, the bonds are there to dampen the volatility. This makes sense in a falling interest rate environment or a stable rate environment, but when interest rates increase at the pace they have this year, that ballast begins leaking and becomes less stable.