Bond Maturity Values
Our office has been receiving calls regarding the overall performance of world markets, and I felt this would be a good to time to remind everyone of some foundational pieces we have in place for you.
First off – our clients do not own this generic thing typically referred to as the "market”. Clients own selective businesses through share ownership or bond issues (lendership).
The ironic thing is that the equity markets have generally risen this year – particularly the S&P 500 (U.S.) and the NASDAQ (U.S.). The Canadian market is more or less flat year to date. So, equity markets are not the issue.
The softness in market values you may be seeing is ironically coming from the fixed income or “bond side” of your portfolios.
So, here is some good news. Bonds have maturity values (similar to GICs), which you are not seeing on monthly statements. You only see your bonds priced at their current market value if you sold today.
Your bonds – like equity positions – are intended to be held over longer periods of time to provide sustainable income – and will be sold or redeemed when their values are closer to “PAR” at or near maturity.
Maturity value is the amount of money you'll receive when the bond reaches its specified maturity date. It's the value promised to you (by the lender) when you initially invested. Think of it like a finish line.
The primary influencing factor over bond market values is how interest rates move. If rates go up (like they have), it puts downward market price pressure on the bond’s daily market value.
The important thing to remember is that market values can go up and down, sometimes significantly, before a bond matures. This doesn't mean you're losing money, unless you decide to sell your bond before it matures.
So, it's normal for current market values to be different from the maturity values, but as long as you hold onto your investment until it matures, you'll receive the promised maturity value – and interest payments along the way.
Remember, selling investments during a market downturn can lock in losses, and it may be challenging to recover those funds later.
In the end, my goal is for continued interest payments and to build certainty into fixed income products. Preservation of capital is a top priority, and this is where maturity values are most valuable.
Moreover, your peace of mind and financial security are of the utmost importance, and we're here to support you in making the best choices for your future.
Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, David Nellist, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor's circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.
