Personal Investments • Why is long-term bond acceptable?

When you say the "long bonds are super charged" what does that mean? How does VGLT compare to VBILX, how do they react to changing interest rates?

Thanks!

It is an old thread, so I thought I would respond. Long term bond prices (bond funds) will get clobbered if rates rise. Look what happened in 2022.

In general, when rates rise, bond prices fall and vice versa. Understand this overly simplified example. If interest rates are ten percent, and the bond pays ten dollars in interest on a $100 bond as $10 is ten percent of $100. If rates fall to five percent, but the bond still pays $10 in interest, the price of the bond will be $200 as $10 is 5 percent of $200. Again, things get more complex, but the basic relationship doesn't.

So, after that rate increase (and price decrease), interest rates will be high and you can lock in some high rates buy buying bonds directly or see some nice interest plus some nice price rise if interest rates fall.

Statistics: Posted by coastFIREdude — Tue Aug 27, 2024 3:07 pm — Replies 60 — Views 5959