When interest rates rise, the value of your fixed-income investments, such as bonds, will typically fall. If this happens, how should you respond?
First of all, it’s important to understand this inverse correlation between interest rates and bond prices. Essentially, when interest rates rise, investors won’t pay you full price for your bonds because they can purchase newly issued ones that pay higher rates. So, if you sell your bonds before they mature, you could lose some of the principal value.