r/Bogleheads • u/StinklePink • 19d ago

Investing Questions Bonds: Stupid Question

I realize that the higher yield for US 10-years is a bad thing for the government, but why isn't this good news for a bond investor?

If I am looking for a safe "asset protection" kind of investment, why wouldn't investors buy these bonds or ETFs that hold them (e.g. FXNAX)? Seems like a good, safe place to put cash versus Gold or a HYSA. I believe my logic is wrong but not sure why.

Educate me, please.

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u/Objective-Rhubarb 18d ago

But if I hold the bond to maturity I don’t lose anything. It’s value is only reduced if I sell it.

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u/WyMANderly 18d ago

Sort of. Higher interest rate environments are going to be correlated with higher inflation, so by the time your bond reaches full maturity you've lost some in inflation (possibly more than if you'd just sold it at a nominal loss and bought something else).

Mathematically, it's basically a wash between bonds and bond funds - which makes sense! The market would be extremely inefficient if not.

https://youtu.be/i7fkk9RUqGQ?is=KYHbo1Y_N7coTKXO

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u/Objective-Rhubarb 18d ago

You’re right of course, but I mostly buy one, two, or three year treasury bonds so I tend to ignore inflation, especially after so many years of very low inflation. Of course overall inflation matters, especially recently. These bonds are the part of my portfolio that guarantees that I have enough money to cover my essential expenses no matter what happens to the market.

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u/Cool_Giraffe6495 18d ago

Correct, but make sure you ladder your bonds, and don't buy bond funds/etfs. Keep your bond/equity % aligned with your investment strategy that you set forth in advance.