By Charlie Bilello
Compound Capital Advisors
When investors think about investing in bonds, losing money probably isn’t the first thing that comes to mind. Bonds have tended to be synonymous with safety, clipping your coupon, and allowing you to sleep well at night.
While this is often the case, often is not always. We’re seeing that so far this year with the broad U.S. bond Index down 3%.
This is a feature, though, not a bug. Risk of short-term loss is the primary reason why bonds have earned a higher rate of return than cash over time.
Risk in bonds primarily comes in two forms: 1) interest rate risk (risk of
rising interest rates) and 2) credit risk (risk of default).
Let’s take a look back at history to gain a better understanding of these risks.