What's the Deal With Bonds Right Now?
Here are four strategies investors can consider to adjust to the drop in bond prices resulting from the steep rise in interest rates.


In today's volatile market, investors are facing unusual challenges, particularly when it comes to bond investments. While stock markets have experienced ups and downs, bond returns have been disappointing, leading many investors to question the role of bonds in their portfolios.
To understand the current state of bonds, it's essential to grasp the fundamentals. Bonds are debt instruments issued by governments and companies to raise capital for various purposes. Investors essentially lend money to the issuer in exchange for regular interest payments and the return of the principal amount upon maturity.
Bonds are considered more conservative investments than stocks, offering stability and income generation. However, they are not without risk, as bond issuers may default on their payments.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Due to the complexities of buying individual bonds, individual investors often access bond exposure through mutual funds or exchange-traded funds (ETFs). Fund managers conduct thorough research on bond issuers and diversify investments across multiple bonds to mitigate risk.
Adjusting to current market conditions
Including bond funds in portfolios serves several purposes, such as reducing volatility, generating income and diversifying investments. However, the recent steep rise in interest rates has led to a significant decline in bond prices. As interest rates increase, bond prices fall, making them less attractive to investors. This phenomenon has created a challenging environment for bond investments.
While the goals related to bond allocations remain the same, appropriate adjustments should be considered to adapt to the current market conditions. Here are some strategies that can be employed:
1. Reducing bond duration
Duration refers to the time between now and a bond's maturity date. Shorter-duration bonds tend to have lower price volatility compared to longer-duration bonds. Portfolio volatility can be reduced by shifting bond funds from medium to short duration. Money market funds have the shortest duration and are typically used for this purpose.
2. Buying individual bonds
While buying bond funds is common, individual bonds can provide more control and customization. However, individual bond ownership requires expertise in bond research and management. Financial advisers can offer access to individual bonds and fund managers who can handle the research and management aspects.
3. Considering dividend-paying stocks
For investors seeking income, one option is replacing a portion of the fixed income allocation with dividend-paying stocks. Dividend payments from stocks can provide a source of regular income, complementing the income generated by bonds.
4. Looking at alternative asset classes
Alternative asset classes, such as commodities or real estate, can diversify portfolios. These asset classes may offer unique opportunities for growth and income, contributing to a well-rounded investment strategy.
A long-term perspective is important
Despite the recent challenges faced by bond investors, it's important to maintain a long-term perspective. When bond prices are discounted, investors can benefit from higher returns when the bonds mature. Rebalancing portfolios during market downturns allows for purchasing bonds at lower prices.
Bond allocations are common in most client portfolios, and a financial adviser can help recommend and implement the above adjustments if prudent and appropriate for your particular situation. For individuals with losses in taxable accounts, tax-loss harvesting before the end of the year may also be considered a strategy.
Understanding the dynamics of bonds and their role in diversified portfolios is crucial for investors navigating today's market challenges. While bond returns have been disappointing recently, bonds still offer stability, income generation and diversification benefits.
By adjusting strategies and considering alternative approaches, investors can adapt to current market conditions and continue working toward their long-term financial goals. It is essential to consult with a trusted financial adviser to develop a personalized plan that aligns with individual circumstances and priorities.
This article is educational and not investment advice. Please contact your financial advisor to discuss your individual situation.
Sara Stanich, MBA, CFP®, CDFA™, CEPA is the founder of Cultivating Wealth, an independent, women-owned financial planning firm serving families and individuals nationwide. Residing at the intersection of life and finances, Cultivating Wealth offers fee-only financial planning services for people who want to take power over their wealth. To learn more, visit cultivatingwealth.com.
related content
- Is It Time for Retirees to Break Up With Bonds?
- 10 Things You Should Know About Bonds
- I-Bonds: Pros and Cons of Investing
- Best Bond ETFs to Buy Now
- How to Buy Treasury Bonds
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Sara Stanich is a Certified Financial Planner practitioner, Certified Divorce Financial Analyst (CDFA), Certified Exit Planning Advisor (CEPA) and founder of Cultivating Wealth, an SEC-Registered Investment Adviser. Sara has been a financial adviser since 2007, which followed 12 years in marketing roles and an MBA from New York University. She is a frequent source for the financial press, and has been quoted in Investor’s Business Daily, U.S. News and World Report, and CBS News. After over 25 years in New York City, Sara recently moved to the beach with her husband, three kids and Labrador retriever. She frequently blogs at cultivatingwealth.com.
-
Best Home Rental Websites and Apps 2025
The best home rental websites and apps, such as Rent.com, Apartment Guide, Airbnb and Vrbo, can make finding a home or vacation rental a whole lot easier.
-
Stock Market Today: Markets Chop Up More Trump Threats
Stocks are grinding to new highs on light summer volume, and bitcoin is only getting bigger.
-
Financial Pros Provide a Beginner's Guide to Building Wealth in 10 Years
Building wealth over 10 years requires understanding your current financial situation, budgeting effectively, eliminating high-interest debt and increasing both your income and financial literacy.
-
Five Mistakes to Avoid in Your First Year of Retirement
Retirement brings the freedom to choose how to spend your money and time. But choices made in the initial rush of excitement could create problems in future.
-
I'm an Investing Expert: This Is How You Can Invest Like Warren Buffett
Buffett just invested $15 billion in oil and gas, and you can leverage the same strategy in your IRA to potentially generate 8% to 12% quarterly cash flow while taking advantage of tax benefits that are unavailable in any other investment class.
-
Integrity, Generosity and Wealth: A Faith-Based Approach to Business
Entrepreneurs who align their business and financial decisions with the biblical principles of integrity, generosity and helping others can realize impactful and fulfilling success.
-
How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific
Here's a detailed look at income annuities and the factors that determine your payout now and in the future.
-
Your Paycheck Stops in Retirement, But Your Life Doesn't: An Expert Guide to Planning for a Confident Future
Social Security will replace only about 40% of your salary, on average. A solid financial plan will help you plug the gap so you can rest easy in retirement.
-
Are You Jeopardizing Your Future to Help Your Adult Kids? An Expert Guide for How to Not Do That
If your adult child needs financial help, of course you want to provide it, but crafting a plan that also protects your financial and emotional well-being is vital.
-
I'm a Financial Planner: Here Are Some Long-Term Care Insurance Tips for Every Age
Strategies include adding riders to life insurance for younger individuals and considering hybrid or traditional long-term care policies for those in their mid-50s and 60s.