Rising rates often tempt investors to move their move their money to cash, as in money market funds. Many investors have been yielding to this temptation in the current environment.
Jason Kephart interviews Chris Phillips
, a senior investment analyst at Vanguard
], on why investors should stick it out with bonds, even if that means taking some tough medicine now.
When Vanguard's analysts looked at a worst-case scenario — investment grade bonds after rates rose 300 basis points — the portfolio would lose around 13 percent, Kephart reports.
Investors should aim for the kind of yield they would get with bonds, Phillips tells Kephart — and with money market funds, it's hard for investors to pick a time to get back into the market.
Phillips tells Kephart that advisers would have to time interest rates "better than anyone else out there."
Phillips tells Kephart, "If you're reinvesting dividends you can be black in a fairly reasonable amount of time."
However, he didn't outline what a "reasonable amount of time" meant.
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