facebookIn today's low interest rate environment, is it still wise to put money in a bond fund/etf? - Seedly

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Anonymous

09 May 2020

General Investing

In today's low interest rate environment, is it still wise to put money in a bond fund/etf?

Bond prices work inversely to interest rates. If ir goes up, prices go down. Not sure if coupon rates can offset the ir movement

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The function of bonds in a portfolio is for stability. While the returns might not be high in a low interest rate environment, it still serve the purpose of lowering overall portfolio risk and votality. This is because debt securities have higher seniority rankings than other securities such as preferred and common shares.

There is still the possibility of inflation from economic growth after this pandemicand bonds may have higher coupon rates at that time.

For floating-rate bonds where the coupon rate is linked to a reference rate such as SIBOR/LIBOR, the coupon rate is likely to decrease when the interest rate decreases.

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