Yes but true whether you buy a bond or a bond fund.That's what TIPS are for.
1) If you own a bond with a 2% coupon and today new bonds are issued at 3%, you have a loss even if you hold to maturity.
Not a tax loss, but an economic loss. The reason new bonds would have a higher rate is generally higher inflation.
Your 2% bonds is not keeping up with inflation but the 3% bond would do a better job of doing so.
You are losing BUYING POWER by owning the 2% bond when new 3% bonds are available to purchase.
Getting a guaranteed real yield.
Will new TIPS have an ever better real yield? Maybe. But if you bought at a positive real yield, at least you won't lose to inflation.
But if you own a tip with a lower fixed rate and later new issues are offered with higher fixed rates, whether you own a bond or bond fund, your bond has an opportunity cost. You can pretend it’s not there, but it is there.
Statistics: Posted by beyou — Wed Dec 20, 2023 12:04 am — Replies 22 — Views 1300