Update on Interest Rates

Since my last post, the Federal Reserve has raised rates 3 times, so short term rates are getting closer to their long term historical rates. I think we can all agree that it is uncomfortable having money in a bank savings account earning 1/10 of 1%, when it will take at least 2% more in a year to buy the same amount of stuff, due to inflation.

In the short term, increases in interest rates hurt the principal value of bond funds. As each bond in the portfolio matures, and is replaced with one that pays the current, higher, rate, the annual income will go up correspondingly. There is a measure called "Duration" which helps measure this effect. If you'd be interested in attending an online session to learn more about this, drop me a line and let me know.