Rising rates & bonds

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Federal Reserve raised interest rates in December 2016, and more rate hikes are expected in 2017. In a rising-interest-rate environment, a portfolio that’s weighted heavily in bonds could take a hit if you aren’t prepared.

Kim Jenson of UBS says that, in addition to diversifying their portfolio to hold more stocks, investors should diversify their bond holdings.

Cameron Hinds of Wells Fargo Private Bank suggests that you hold individual bonds instead of bond mutual funds. “Owning individual bonds allows the investor to receive their principal when the bond matures, irrespective of the interest-rate environment,” he says. Of course, a bond’s credit quality is important, because a low-risk bond, such as a U.S. treasury bill, increases the chance of a return of the principal at maturity, Hinds adds.

Jenson suggests that you select individual bonds that have diverse maturity dates, rates, credits and geographies to get a good mix.