Understanding Interest Rate Risk

Many investors have responded to worries about interest rate risk by keeping their fixed income investments restricted to money market accounts and very short-term fixed income securities. The following discusses the risks of following such a strategy and what should be considered. Over the past year, we have received questions about the potential impact of rising interest rates on fixed income portfolios. Some investors have been so concerned about interest rate risk that they have kept their fixed income allocation in either money market accounts or very short-term fixed income securities. Let’s explore the interest rate risk characteristics of the types of fixed income securities and funds that we recommend. This should provide a better understanding of the risks imbedded in fixed income and how it could impact total portfolio risk.