Own Longer-Dated Bond ETFs

September 14, 2015

Material Risks Quantified

The risk of rising interest rates is material. In the next chart, you can see the impact each 1 percent rise in rates has on both 10-year and 30-year Treasurys. Should rates rise 2 percent, the bonds will decline approximately 16 to 32 percent in value (red circles). Should rates move lower by 1 percent, gains will be approximately 9 and 23 percent (green circles). Today [Sept. 10, 2015] the 10-year Treasury is yielding just 2.22 percent.


For a larger view, please click on the image above.

Note how much greater the loss is when rates rise just 1 percent by comparing a move from 2 percent to 3 percent (-8.58 percent) versus a move from 7 percent to 8 percent (-5.24 percent). Simply, there is more risk to your bond exposure when rates are ultra-low.

Sticking To The Plan

While Wall Street economists missed in 2014, the Zweig bond model remained bullish on longer-term bond ETFs. Of course, there are no guarantees in this business. Not every trade proves to be correct. It is a defined investment process that is systematic, and requires discipline to adhere to the process.

If you choose to follow the Zweig bond model process, or any other process for that matter, there are several important questions to ask yourself:

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