Historically, bonds tend to be less volatile than other types of investments. If you choose to invest in bonds issued by the U.S. government, you should feel confident that you’ll receive interest payments on time and that your principal will be repaid when the bond matures because the bond is backed by the full faith and credit of the government.

Yet many people overlook the fact that bonds are subject to price fluctuation based on changes in interest rates. There is an inverse relationship between bond prices and interest rates—when rates rise, the value of existing bonds declines. This means your bond portfolio can actually lose value if the overriding trend is increasing interest rates.

You may not want to risk a loss in your portfolio as you head toward retirement. Understanding the potential risks associated with fixed income investments can help you make informed decisions about strategy adjustments that may help your retirement goals stay on track.


You may not want to risk a loss in your portfolio as you head toward retirement.


The downside risk from rising interest rates

Even a modest upward adjustment in interest rates can make a significant difference in the value of bonds. For example, suppose you invested $100,000 in a newly issued 10-year U.S. Treasury note that paid a 3% coupon rate (the interest rate offered by a bond issuer). If a new 10-year Treasury note was issued one year later with an interest rate of 4%, the bond you purchased would be worth significantly less on the market, should you decide to sell it before maturity.

Why should you be concerned about interest rate risk? Interest rates began rising in 2020, and the rise didn't show signs of slowing until late 2023. Although interest rates may hold steady or even decrease through 2024, investors planning for retirement can't afford to ignore that rates may again move higher in the future.1

Protecting against potential losses in bond investments

Fixed income investments such as bonds can play an important role in your portfolio. They are even more critical if you are retired and seeking to generate income from your investments. But in low interest rate environments, you may not want to get locked into long-term bonds that could lose value if interest rates rise. Alternatives to consider include:

  • Short- to intermediate-term debt securities with maturities of three months to five years. They are less subject to downside risk if rates should rise.
  • Certain annuities that can guarantee your principal and provide a fixed stream of income each year. The guarantee is subject to the claims-paying ability of the issuing insurance company. (For more on annuities, see our article, “Are annuities right for me?”)

With these strategies, income solutions can be structured that could help protect your investments from rising interest rates. A financial professional can work with you to design a holistic financial plan designed to address concerns and uncover opportunities to help you achieve your goals.

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