Welcome to the Stay Wealthy podcast. I'm your host Taylor Schulte. And today I'm tackling part three of our four-part series on investing in bonds. Specifically, I'm going to share why buying bonds and holding them to maturity might not be the best strategy. In fact, if interest rates start to go up

from here and we maintain a normal yield environment, it's quite possible that holding bonds to

maturity will result in inferior returns. So if you want to continue learning how bond returns

are generated and where there might be opportunities in this asset class, today's episode is for you.

For all the links and resources mentioned, head over to you staywealthy.com forward slash 87.

So last week, I made a quick comment that bonds and interest rates have this inverse relationship.

In other words, if interest rates

rise, bond prices fall. And this is a simple fact. It's not a theory or a guess or some sort of

prediction on my part. This is just what happens. When interest rates rise, bond prices fall.

And in the early 1980s, interest rates peaked. The Fed funds rate was hovering around 20 percent,

and interest rates have been coming down ever since. Because interest rates have been steadily

falling, bond prices have been steadily increasing. And to put that in numbers that we can

all understand and have a conversation about, since the barclays intermediate u.s treasury

bond index has had an average annual rate of return of about 6.7 percent and since these are safe

government bonds you earned that return that pretty good return i think we'd all be happy with

you earned it by taking about

75% less risk than the stock market. Now, to be fair, the S&P 500, the representation of the U.S.

stock market, had an average annual rate of return during that same time period of almost 12%.

So almost double the return of bonds during that time period,

which of course makes sense, right? Higher risk, higher returns. I think we all know this by now.

Today, with interest rates at record lows, it feels like there's nowhere for them to go but up,

which has left a lot of bond investors unsure of what to do and how to invest their bond portfolio

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