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Read More For more information about bonds and rising interest rates, read “The Importance of Proper Portfolio Allocation” at www.moaa.org/allocation.

46 MILITARY OFFICER SEPTEMBER 2015

Are you worried an interest rate increase will aff ect the value of your bonds? Lt. Col. Shane Ostrom, USAF (Ret), CFP®, provides some insight and explains how to manage the risk.

Some bond holders might worry about rising interest rates because when interest rates rise, bond values can fall. But an upcoming interest rate increase is not news. Future increases will be in fractional increments. Even assuming a rate increase that will rock the bond world, what’s the worst that can happen? If you hold individual bonds and you in- tend to hold them until maturity, you’ve got nothing to worry about. Interest rate hikes only aff ect your individual bond portfolio if you sell prior to the bond’s maturity date. Bond mutual funds, on the other hand, could see their share prices decrease, and, therefore, your account value will decline a bit. How much? Check your bond fund on the Yahoo Finance website (www.fi nance.yahoo .com). Plug your bond fund ticker sym- bol into the “Quote Lookup” search box on the upper left corner of the page. If you aren’t sure of the ticker symbol, type in the name of your fund. Try VBMFX. Next, on the left margin under “Fund,” click on “Holdings.” Scroll down to the bottom to the “Bond Holdings” box, and note the duration. While not an exact measure, generally this means for every 1 percent increase in interest rates, this fund’s value will decline by that percent (or go up in value if interest rates decline).

Changes to interest rates will not occur in 1-percent increments. They will

be in fractional amounts over long peri- ods of time. Per Benjamin Graham, proper invest- ment management is about the manage- ment of the risk, not the management of the return. So let’s manage the risk. This potential loss in value can be off set

by investing in another fund that mitigates the drop in value or actually thrives in ris- ing interest rate environments. You can choose a bond fund with a smaller duration. A lower duration num- ber means a smaller drop in value. You probably can sustain a smaller drop over the long haul. Some investment choices allow you the opportunity to establish a portfolio that might increase in value. Consider balanced funds — combination stock and bond funds. Or maybe consider a more conservative stock fund, like an equity- income-type fund. This is a fund that holds dividend-paying stocks. The key to all this is your portfolio al- location — not the news or world events. The safest bet is to have an appropriate allocation that is built to withstand fi ckle market and economic conditions. Then, regardless of what happens in the future, you have planned for it and can ride it out — good or bad.

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— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to beninfo@moaa.org.

PHOTO: SEAN SHANAHAN