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Nancy Graham CPA, CA, CIM, CFP, TEP

Portfolio Manager
Contact
  • T613.237.5544 x 303
  • 1.800.230.5544
  • F613.237.5949
  • 265 Carling Avenue,
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  • Ottawa, Ontario K1S 2E1

What’s the Scoop on Bond Values?

March 23, 2017 - 0 comments

In my last “No Dumb Questions” video, we introduced some of the basic differences between stocks and bonds, which explain why each entails different sorts of risks and expected returns. Next, I want to take a closer look at bond values, and how the risks inherent to investing in bonds can affect those values.

Specifically, let’s consider this frequently asked question: “If bonds are supposed to be so ‘safe,’ why do my bonds or bond funds sometimes decline in value?”

 

The reason for the seeming paradox has to do with the fact that a bond is more than just a loan of your principal, with interest due. There’s also a “part two” to the story: Something we financial folks call a “secondary market,” where vast numbers of investors are buying and selling primary bonds based on their market values at the time.

If you hold a bond to term (and it doesn’t default on you), it ends up paying exactly as promised. That doesn’t change. But what about the value at which that bond would trade if you decided to sell it to someone else along the way? Just as the stock market is an efficient system for continuously setting – and re-setting – current stock prices, the secondary bond market determines how much your bond is worth at any given time.

Are bond valuations beginning to come into focus for you? Watch today’s video to learn more. And keep those future questions coming, while you sign up to watch more of my “No Dumb Question” answers.

By: Nancy Graham with 0 comments.
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