It has long been our contention at Hennion & Walsh that, for income oriented investors, bonds can provide for a dependable and consistent stream of income, and principal protection when held to maturity. Bonds, whether they are Municipal, Government or Corporate bonds, can also provide for compounded growth opportunities when the income received from the bonds is reinvested.

Additionally, for growth-oriented investors, fixed income securities can provide investors with downside protection and diversification within a growth portfolio, especially in a highly volatile market where additional, measured, short-term flights to quality are likely.

In our view, investors should be careful not to miss out on the income and diversification opportunities offered by bonds by trying to time future, potential changes in interest rates. History has shown us that trying to time the market, or time interest rate increases or decreases, is often an exercise in futility. With this said, it is important to understand that when interest rates do increase, bond prices may fall and yields may rise.  However, rising interest rates should not impact the interest that bond holders receive on their bond holdings nor should they change the ability of these investors to receive par value on their bond holdings at maturity. Bond fund investors, on the other hand, may see the interest they receive on their fund holdings change in a rising rate environment and will not receive a fixed value at maturity as there generally is no set maturity on bond funds.

However, recognizing, of course, that past performance is not an indication of future results, history has shown that certain fixed income asset classes have weathered previous periods of tightening. Based on research from Nuveen Asset Management (see below), three of the more recent rate hike cycles were analyzed to gauge the performance of different types of bonds during these specific periods of tightening. These time periods were as follows:

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