AAFMAA Wealth Management & Trust: Beware of Chasing Yield
By Bob Landry, CFA, CFP®
Senior Relationship Manager
Persistently low interest rates have hampered the ability of retirees to generate sufficient income from their savings. Unfortunately, yield-starved individuals are often tempted to seek out financial instruments offering better yields but are unaware of the inherent risks in doing so. Remember, there is no free lunch — stretching for yield can come at a steep price.
For bonds, investors may achieve higher yields by assuming incremental maturity or credit risk. Extending maturity leaves you vulnerable to rising interest rates and increases the volatility of the portfolio. While persistent calls for higher interest rates by market pundits in recent years have been way off the mark, that doesn’t mean rates won’t rise again. Any significant rise in rates from current levels will adversely impact long-dated bond holdings.
But that’s only the beginning. Read on to learn more about credit risk, your portfolio and more.
Information provided by AAFMAA Wealth Management & Trust LLC is not intended to be tax or legal advice. Nothing contained in this communication should be interpreted as such. We encourage you to seek guidance from your tax or legal advisor. Past performance does not guarantee future results.
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