Q. With interest rates likely to rise, driving the value of bond funds down, in the near term, doesn’t this impact the ability of the F Fund to ameliorate risk? Would you advise against new F Fund investments in these circumstances, or is there still a role for F Fund investments?
A. Yes, the low interest rate environment reduces the F Fund’s effectiveness in hedging stock risk, but it does not eliminate it. Bonds remain an important part of any portfolio that also contains stocks, however. This will be proven, again, the next time the stock market crashes. It has been my practice since 2010 to advise my clients to substitute the G Fund for part of the bond allocation in their portfolios.
