What is Interest Rate Risk?

Interest rate risk is a crucial consideration for any investment portfolio, particularly those heavily weighted in bonds. When interest rates rise, bond prices typically fall, which can negatively impact the value of your holdings. This risk is more pronounced for long-term bonds, which have greater sensitivity to rate changes.

To mitigate interest rate risk, investors can diversify across different maturities, incorporate floating-rate bonds, or allocate a portion of their portfolio to equities and other asset classes. Active monitoring and adjustment of your portfolio in response to interest rate trends can help manage this risk in your investments.

A variety of risks exists whether they occur or not.  This is why we buy homeowner’s insurance or car insurance.  Interest rate risk exists, however if interest rates decline bond prices typically rise which would be a positive outcome.

Disclosure:  Asset allocation and diversification does not guarantee a profit or eliminate the risk of loss.