A common rule for investors is to be invested in both stocks and bonds because this reduces fluctuations in assets prices. Is it still smart to be invested in bonds? Dr. Hermann J. Stern, CEO of Obermatt and creator of the Obermatt Method, explains during one of our Zoom Coffee Break stock investing chats.
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Lately, the talk amongst several professional investors has been that returns of bonds are lower and lower. Today, interest rates are so low that they can only go up, which adversely affects bond prices. Bonds are directly dependent on the interest rate. Interest rates have fallen so drastically in the last ten years, that thre is no further room left. As a matter of fact, the trend has already reversed in January with ten year Swiss government bonds now in positive yield territory.
Bonds fall when interest rates rise because new bonds with higher interest rates reduce the value of older bonds. This is why short-term bonds are safer than long-term bonds now.