I have been having this conversation every day with clients, a decline in the market value is not the same as a loss. This has been a worry for many investors over the past two-ish years, let me try helping you let go of some of that fear.

One big area where mutual fund share values have declined is in bond funds. When interest rates rise, bond prices go down, this is the natural see-saw, we just have not seen rate increases like this since 2007. Here is an example of how that works:

Let’s say I lend someone $5000 for 5 years at 3%, then a year later interest rates increase and I can now make that same $5000 loan but receive 5% – can you see why the 3% loan has lost its value?

Now here is the flip side; if this is a bond fund and the dividends are being reinvested, the 3% fund can buy those reinvested shares at a lower price (the value declined) and accumulate more shares per dividend paid than the 5% fund. If you are taking dividends in cash, then you are very happy about that check as it has increased, you have to teach yourself to ignore the value of the shares unless you absolutely have to sell them.

A simple explanation I heard a long time ago is: I don’t care how fat or skinny the chicken is, as long as it keep laying the eggs.

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