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Survey Finds Investors Don't Understand Risks of Bond Investing
Investors have pumped five times as much money into bond funds this year as into stock funds. This requires skill in a falling interest rate environment.
A new survey by American Century Investments suggests that investors don't understand bonds. For example, only 31% of those surveyed understood that when interest rates rise, bond prices generally fall. This is a critical relationship.
Likewise, only 13% of those surveyed knew that, generally, the longer the bond's maturity, the more sensitive its price is to changing interest rates. In fact, fully 41% were wrong in believing the opposite (that interest rate sensitivity declines with lengthier maturities).
Source: Wall Street Journal, November 9, 2001
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