Imagine that you retired in July 2012. Upon retirement, it was decided to place your hard-earned savings into a bond portfolio for safety and income. Let’s say that the portfolio is comprised of U.S. Treasury bonds and with an average maturity of about 8 ½ years.

So, how would you have done?

Despite receiving interest payments which would have yielded on average of about 1.8% of your initial investment, you would be down a total of 5.58% (see chart above).

That’s right, even when you add back the interest payments, you would be down a total of 5.58% over the first 18 months of your retirement!

If the volatility in the bond markets ended today and bond prices did not change, it would take three years’ worth of interest payments just to get back to breakeven. Four and a half years into retirement, and despite receiving interest over that time frame, your total return would be zero.

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Richardson GMP Limited, Member Canadian Investor Protection Fund.

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