Rebecca's investment strategy includes individual bonds. What is a potential concern she may face with such an investment?

Interest rate risk is indeed a significant concern when investing in individual bonds. This risk arises from the possibility that changing interest rates will negatively impact the value of existing bonds. When interest rates rise, the prices of existing bonds typically fall because new bonds are likely issued at higher rates, making them more attractive to investors. As a result, Rebecca’s existing bonds may decrease in market value if she decides to sell them before maturity.

Understanding interest rate risk is crucial for bond investors, as it not only affects potential returns but also plays a key role in overall portfolio management. Since bonds are often included in a diversified portfolio to provide stability, fluctuations in interest rates can lead to substantial changes in their value, directly influencing investment strategies and decisions.