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Comment by jmann99999 | Hacker News Reader

I generally agree with your comment. However, retirees should want rates to rise. As you age, you want less of your money in more risky assets like the stock market. You want your money in CDs, money market accounts, and bonds. You want these safer instruments to pay a decent interest rate (say 5%) and not 1%.

However, as you point out, rates have been low for a long time. This has caused retirees and people approaching retirement to invest in riskier assets. They have been forced into a loser’s game. That’s going to cause a lot of pain if we get a massive correction.

Those of us who have time to recover from a correction will be OK. Those who lose 50% of their assets in a correction, and don’t have the time to make that up, are going to have their lives turned upside down.

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If you already hold fixed income assets, you do not want rates to rise, because when rates rise, the price of your holdings will fall. When rates fall, those interest bearing assets look better in comparison to the new bonds (e.g.) that are being issued, so their price rises.

That is correct, if you are currently holding with the idea of selling before maturity. However, if you are holding to maturity or investing in money markets or CDs (that are short-term), you do want high interest rates.

Imagine yourself in 1981 and could have locked up a 30 year U.S. treasury at 14.5%. Sure, there are riskier investments that may have beat that. However, if you are a retiree, that type of consistent, non-risky return is what you would want.

When you sell doesn't really matter. The current value of your bonds (e.g.) will still drop if interest rates go up.

If you bought that 30 year at 14.5% and we had hyperinflation then you wouldn't be so happy. There was a reason why those rates were at that point, inflation was >10%.

Conversely you could try to short bonds now but if rates stay at zero for the next few decades or go negatively that's not gonna be so great. In the rear-view mirror someone will say how we were stupid(?) for not shorting bonds when the rates shoot up to >10% again, or they don't. It's hard to win this game.

What is true is that retirees might have a shorter horizon (though people keep living for longer and longer) and so they may be forced into safer/shorter duration investments and possibly into smaller returns.

Efficient markets something something ;)

While this is true for an individual investor, a large part of the market for fixed income investments is large investors who are liability matching in one way or another: either against a portfolio of life insurance policies or against defined benefit pensions. They genuinely don't mind if the value of their bonds falls due to rates movements because (if they have done their jobs right) the value of their liability stream will also fall by a corresponding amount.

Of course, you can then apply your argument to people who have pensions or life policies I suppose but those aren't things people often "sell".

But the value of bond investments will go down as the rates raise

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