Why you shouldn’t abandon bonds
Bond prices may not matter as much as you might think they do.
While swift bond price declines can be upsetting, it’s important to remain focused on the long-term benefits of higher interest rates.
Bond total returns have two main components: price return and return from income. Changes to interest rates cause these two components to move in opposite directions. As a medium- to long-term investor, you should care more about bond total returns instead of the negative short-term impact on bond prices. In fact, as we show in the chart, the long-term performance of bond investments has come mostly from income return, not price return.