After reading my answer, above, I think it was just more confusing. Let me try again.
Wellesley is a balanced fund that invests about 2/3 of your money in bonds and 1/3 in stocks. First, let's look at just the bond portion. With bonds, the price of the bond drops when interest rates go up and rises when interest rates go down. If you own bonds and interest rates rise you get no additional income. Instead the value of your investment in bonds goes down to reflect the higher interest rates. You still get dividends, though, and if you re-invest those dividends you do it at the higher yield/lower price. Over time, your effective yield will increase.
Normally, bond yields go up and bond prices go down in respond to an improving economy. That tends to drive the stock market up. Even though stocks are only one third of the Wellesley portfolio it is the stocks that tend to drive the net asset value (NAV) of Wellesley. So, in a period of declining bond values and rising stock values the NAV of Wellesley will tend to rise.
Also, as bond prices fall and stock prices rise the portion of the portfolio invested in stocks will increase and the portion invested in bonds will decrease. This will result in the fund managers selling stocks and buying bonds to bring the portfolio back into balance. This means that the fund is selling high and buying low.
We had a good example of all this since the beginning of August. Stock prices and interest rates tanked. Bond prices rose. The NAV of Wellesley fell, but not by much. Since the beginning of October stock prices and interest rates have climbed. Bond prices have fallen. The NAV of Wellesley has climbed, but not by much. Over time, the preservation of capital when stocks drop outweighs the lower profits when stocks climb and an investor can do very well.
To answer your question, if bond prices go down and interest rates rise, then the value of this fund should rise slowly as long as the stock market also goes up. Over the long term, you will tend to make money in a rising stock market and lose money in a falling stock market. As I mentioned before, the whole thing can be a bit complicated.
Thanks for the reply . It is confusing but I understand it much better . In the long run what I take from this is that this fund , in which I have about 40% of my money , won't take off and make me rich , but will let me sleep at night , even in the event the whole thing implodes again , like 2008 . In the meantime , if I can average close to 6% with it , I am happy .
Actually, the one third of the portfolio that holds stocks tends to drive the price. Bond prices, which tend to move in the opposite direction to stock prices (but not always), tend to act as a drag on the price. That means that the price doesn't fall as much during bear markets but doesn't rise as much during bull markets. Over a market cycle the downside protection of bonds means that the fund does well compared to stock funds. And, the balanced nature of the fund means that the fund tends to sell assets that have performed well and buys assets that haven't done as well--buy low, sell high.
Bond yields move in the opposite direction of bond prices. After you've made an investment, higher yields mean that the value of your bonds have fallen. You don't really get the higher yield. But, reinvestments do, effectively, get the higher yields. The whole relationship is complicated.
Bottom line is that you lose money on bonds if the bond market falls rapidly but are probably doing okay overall because the stock portfolio is probably rising faster than the bond portfolio is sinking. Yield, if re-invested, is buying new higher-yielding bonds.
What you want is relative stability and not a panic.