Why do rising interest rates negatively affect bonds?

Sam has a bond paying a 2% coupon.

The Fed raises rates to 3% and suddenly, Sam’s bond is not as attractive, so the price of his bond drops to reflect the new yields.

Along comes Bob – he can now either buy the new 3% bond, or buy Sam’s 2% bond but at a discount to ultimately yield 3%.

 

I am planning to take a big chunk of money out of my portfolio to fund _ _ _. How should I go about doing that?

If you plan to withdraw a significant portion of your account at least a 3 month notice would be useful so we have the opportunity to sell investments at the best time and so that you can avoid any penalties for early redemption of mutual funds.

If we recently rebalanced your portfolio, liquidating your mutual fund investments may make you subject to short-term redemption fees:

  • TD Ameritrade, imposes a short-term redemption fee of $49.99 on each mutual fund held for 90 days or less.
  • Additionally, many of the funds themselves impose 90 day fees of around 2%.

We typically keep a small portion of a portfolio liquid for potential transfer, fees, market opportunities, etc., so a small funds transfer should not be subject to any of the fees mentioned above and will take one to two business days to transfer to your bank account, assuming that all the paperwork linking your accounts to your bank account was set up initially.  If however, you need the funds to go to a new checking account you just opened, paperwork will need to be filled out and signed and TD Ameritrade will need a few days to process it to get the link set up.