Investors Should Ask Their Advisors These Key Questions On Their Bond Holdings

Oppenheimer Funds

This is the first post in the 8-part “Taking Stock Of Your Financial Advisor” series, focused on the dynamic relationship between high-net-worth investors and their advisors. “Taking Stock Of Your Financial Advisor” is sponsored by OppenheimerFunds. See more posts in the series ».


Interest rates have been maintained at an artificially low level for some time now. But talk of the Fed tapering its bond buying program has everyone worried about the rise in interest rates.

Rising interest rates usually cause bond prices to fall because the interest rates on older bonds are lower than the new market rate, and vice-versa.

We saw the yield on the 10-year surge from 1.6% on May 2, to 3% last week.

But everything we hear from various talking heads about the implications of rising rates for an investors portfolio can be confusing.

So here are a few key questions that investors should ask their advisors about bond exposure in a rising rate environment.

  • Why does my portfolio need fixed income investments? Do I need it to diversify from stocks (because bonds typically have low correlation to equities) or is it to preserve capital?
  • How will higher interest rates impact my holdings?
  • Will exposure to foreign bonds help? What risks would those bring?
  • Does it make sense for me to hold only cash?
  • Should I switch from active to passive?

It is important to sit down with your advisor and reconsider not just your strategies but your financial goals and see the role bond holdings play. It is important for both to stay flexible.

As with any other aspect of your portfolio construction you and your advisor need to determine this in the context of your risk tolerance and age as well.