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| 18b US Department of the Treasury - NRHP-71001007 (E) (Photo credit: Kansas Sebastian) |
Martin Hutchinson writes: With interest rates at near-record low levels it appears that the only way for rates to go is up. As the U.S. economy moderately strengthens, that means the bond bubble will begin to leak. Even darker, the bubble might just burst altogether.
The prospect of yet another bursting bubble makes investing in bonds difficult. The same is true for stocks. After all, stocks tend to underperform when rates head north, while gold will certainly drop back once interest rates begin to rise ahead of inflation (which may take a considerable time.)
However, there is one strategy that enables you to prosper even in this tough environment. It is called the bond ladder. It works like this..Bond investing in a rising rate environment can be a terrific way to lose money. If you buy short-term bonds, the yields may well be less than inflation, causing you to lose money in real terms.
And if you invest in long-term bonds, your immediate yield will generally be higher, but you run a large risk of losing part of your principal as rates rise and bond prices decline.These losses can be a large multiple of your interest payments... Continue to read.
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