Chapter 3. Risks of Bond Investing

Because the goal of this book is to help you earn the best returns consistent with a reasonable degree of safety, it is important to know what level of returns you might achieve with different types of bond investments. Although the public considers bonds to be safe—and for the most part this reputation has been justified—in 2008 and early 2009, some areas of the bond markets experienced unprecedented losses. Your goal is to avoid the potential minefield that is today’s bond market. This section explains what you have to watch out for.

How to Measure Risk—Drawdown

Drawdown is a visually intuitive way to measure risk. A drawdown is the percentage loss from a high point to a subsequent low point in the value ...

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