Bonds are a safe bet when the market is in meltdown mode.
(click on the bold-faced vocab word:))
Even though the $$ loaned will not be mine for awhile, I want to know how much it’s worth NOW.
I need to divide the bond’s payoff by (1+ the interest rate).
Sorry, but it’s easier to rationalize with fractions. 2/4 is larger than 2/5.
Accordingly, when interest rates rise the current value of bonds lowers. AKA 1000/1.05 is larger than 1000/1.1.
That one looked painful, so I plug it into a calc.
My savings account cannot wait for the interest rates to skyrocket. But bond-buyers (*especially long-term bond-buyers*) beware!
(Originally published on Amanda Stanhaus’s financial literacy blog: XO, Bettie.)