This article will help 401k plan participants look carefully at the bond funds and other products that contain bond funds inside their 401k Retirement savings account.
You have no doubt been led to believe that the bond funds offered among your 401k investment options are a safe, prudent and conservative investment. What you may not know is the perpetual risk particular to bond funds, specifically interest rate risk. Interest rate risk is a description of the fact that bond and bond fund values move in the opposite direction as movements in interest rates. It works like this: if interest rates go down, bond values go up; and, if interest rates go up, bond values go down.
Now for the owner of bonds this risk is managed by simply holding the bonds to maturity when they will get all their money back. Bond Fund owners, on the other hand, have never had the promise of a maturity date. For them the portfolio is perpetual as is the exposure to the interest rate risk.
retirement savings account
Over the past 30 years, bond fund owners have been able to ignore this problem because we have enjoyed a generally falling interest rate environment. I believe that is about to change due to Federal Reserve undertaking a Treasury repurchase program combined with the current arguments regarding the federal government’s $14.3 trillion debt limit. If the debt limit is not increased global bond investors will fear a default. Bond owners are already selling off treasuries in anticipation and rates are rising.
The 401k plan participant and her retirement savings account may well bear the brunt of all the political posturing. Remember that treasury rates impact rates on every other bond class from U.S. municipal Bonds to Sovereign Country Bonds. Take a look at all your 401k holdings, not just the bond funds. Every Target Date Fund, Balanced Fund, Growth & Income Fund and even your global tactical asset allocation will likely have bond funds incorporated under the hood. You just need to look ~ now.
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To amend the Internal Revenue Code of 1986 to provide for retirement savings accounts, and for other purposes.
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To amend the Internal Revenue Code of 1986 to provide for employer retirement savings accounts, and for other purposes.
The BiblioGov Project is an effort to expand awareness of the public documents and records of the U.S. Government via print publications. In broadening the public understanding of government and its work, an enlightened democracy can grow and prosper. Ranging from historic Congressional Bills to the most recent Budget of the United States Government, the BiblioGov Project spans a wealth of government information. These works are now made available through an environmentally friendly, print-on-demand basis, using only what is necessary to meet the required demands of an interested public. We invite you to learn of the records of the U.S. Government, heightening the knowledge and debate that can lead from such publications.
List Price: $ 15.75
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