| Here's how rising interest rates may affect your bond portfolio in retirement | | |  | WED, JAN 19, 2022 | | | | Bonds or bond funds have been an essential part of everyone's retirement portfolio for many years.
However, Fed Chairman Jerome Powell last week said he expects a series of rate hikes this year to slow rising inflation. That has obviously created some concerns for retirees about the effects on their nest eggs.
And there is indeed cause for alarm for investors since market interest rates and bond prices typically move in opposite directions, meaning higher rates generally cause bond values to fall, known as interest rate risk.
CNBC's Kate Dore reached out to several financial advisors to weigh in on strategies to reduce interest rate risk on bonds.
As a rule of thumb, the longer a bond's duration, the more sensitive it will be to interest rate hikes. So, if you're trying to reduce interest rate risk, an investor will want to consider bonds or bond funds with a shorter duration, one advisor said.
The best way to manage interest rate risk is with a diversified portfolio, including international bonds, with short to immediate maturities that are less affected by rate hikes and can be reinvested sooner, another advisor explained.
There is good some news: While rising interest rates will cause bond values to decrease, eventually, the declines will be more than offset as bonds mature and can be reinvested for higher yields, an expert said.
Another advisor offered these encouraging words: "Rising interest rates are good for retirees with a longer-term time frame ... and that's most people in their retirement years."
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