Vanguard has found that overtime, with interest payments re-invested, a fixed-income portfolio can hold up as rates rise. For instance, in the hypothetical case where rates rise 300 basis points, Vanguard found that a portfolio of investment-rade bonds would lose 13% over the year, decline 8.5% over two years but provide a total return of 6.3% after the fifth year. [Don’t Forget Bond ETFs Help Diversify Portfolios]
“If you’re reinvesting dividends you can be back in black in a fairly reasonable amount of time,”Phillips added.
For more information on bonds, visit our bond ETFs category.
Max Chen contributed to this article.