If you expect interest rates to decrease, what action should you take concerning bonds?

When you expect interest rates to decrease, buying bonds is a favorable strategy. This is because bond prices and interest rates move inversely: when interest rates fall, existing bonds with higher interest rates become more attractive to investors. As a result, the market value of these existing bonds increases.

By purchasing bonds before the anticipated decline in interest rates, you position yourself to benefit from the potential rise in bond prices. As the market adjusts to lower interest rates, the bonds you buy could yield more desirable returns in terms of capital appreciation if you choose to sell them later at a higher price due to increased demand.

In contrast, selling bonds would generally not be advisable in a falling interest rate environment, as you may lose out on potential profits. Ignoring bonds entirely overlooks the potential benefits of a favorable market condition, and simply diversifying a bond portfolio does not directly capitalize on the opportunity presented by anticipated lower rates.