Q: I am in the process of creating a balanced portfolio using one of your Couch Potato Building Block portfolios as a model. The bond portion of it would be sizeable. I am worried about the loss I would incur as the Federal Reserve stops buying bonds and interest rates go up. I am reticent to avoid bonds completely but ... any suggestions?
A: You’re not alone. With the recent uptick in interest rates, many investors have experienced actual losses for the first time in many, many years. The Vanguard Total Bond Market Index ETF (Ticker: BND), for instance, has lost 2.31 percent year-to-date as of this writing. Similarly, the PIMCO Total Return bond fund A shares (Ticker: PTTAX) has lost 2.79 percent. This fund, which is managed by Bill Gross, recently had a stunning $268 billion in assets according to Morningstar. The only way to avoid this risk is to move to funds or securities that have shorter maturities.
