Imagine a world where your mortgage lender is offering to pay you $3,500/year to take on a no interest $500,000 mortgage.
One of the conversations I keep having over and over with investors is whether they should have Treasury bonds (or Bonds of any kind) in their portfolio.
It’s a relevant question because most portfolios have a bond component. The traditional asset allocation strategy is 60% in equities and 40% in bonds and cash. Bonds benefit a portfolio by diversifying risk and improving performance at a given level of risk.
The concern is that with interest rates at historic lows, Treasury bonds are guaranteed to lose value when rates rise. The reason is that newly issued bonds carry a higher interest rate than existing bonds in a portfolio, even though the income stream is unchanged.