Home > Resources > Portfolio Management > Bond Investments and Risk

Portfolio Management

Bond Investments and Risk

A Checklist for Bond Investors

A Checklist for Bond Investors

Investments in bonds should be tailored to your investment objectives, risk tolerance, and other personal circumstances. Answering some fundamental questions will help you determine the role bonds should have in your portfolio: What are your overall investment objectives? Investors committed to growth are looking for appreciation of capital, with little concern for income, so bonds will have a minimal role in their portfolios. Total return investors want a balance of income and capital...more

Are Muni Bonds Appropriate for You?

Are Muni Bonds Appropriate for You?

No investment, including municipal bonds, is appropriate for every investor. Before purchasing, consider their advantages and disadvantages to see if they are appropriate for your portfolio. Some of the advantages include: Municipal bond interest income is generally exempt from federal, and sometimes state and local, income taxes. Your marginal tax bracket is a major factor when deciding whether to invest in municipal bonds. Thus, you should compare a muni bond's yield to the after-tax...more

Assessing a Bond's Credit Risk

Assessing a Bond's Credit Risk

Credit risk is the risk that the issuer's credit rating will be downgraded, which could decrease the bond's value. Lower credit ratings also are an indicator that a bond may be subject to default risk, or the risk that the issuer will not be able to pay interest and/or principal. When investing in bonds, be sure to assess these risks. Keep in mind that not all bonds are subject to credit or default risk. U.S. Treasury securities, because they are backed by the full faith and credit of the U...more

Bond Investing Misconceptions

Bond Investing Misconceptions

Several misconceptions surround bond investing, including: It's difficult to assess the safety of a particular bond. U.S. Treasury securities are the safest bonds, because they carry the full faith and backing of the United States government. Municipal and corporate bonds have more risk, but their credit rating is typically assessed by at least one of the four major credit rating agencies. The rating agencies evaluate the financial health of the issuer and rate the bonds according to...more

Bond Strategies for Various Financial Goals

Bond Strategies for Various Financial Goals

The strategies used for bond investing will depend on the financial objectives you are pursuing. Consider these financial objectives and bond strategies: Earning interest while preserving principal. This is the most typical role for bonds and is usually accomplished with a buy-and-hold strategy. With this strategy, you purchase a bond and hold it to maturity, looking for the highest return potential for a given time frame within a comfortable risk level. By holding the bond to maturity, you...more

Managing Bond Risks

Managing Bond Risks

All investments are subject to risk, although the types of risk can vary. While you can't totally eliminate these risks, you can develop strategies to reduce them. For bonds, consider these strategies: Interest rate risk Interest rates and bond prices move in opposite directions. A bond's price will rise when interest rates fall and decrease when interest rates rise. This occurs because the existing bond's price must change to provide the same return as an equivalent, newly...more

The Basics of TIPS

The Basics of TIPS

Treasury Inflation Protection Securities (TIPS), issued by the U.S. Treasury, are similar to other Treasury bonds in a number of respects: They are backed by the full faith and credit of the U.S. government, so they have no credit or default risk. Credit risk is the risk that the issuer&'s credit rating will be downgraded, which could decrease the bond's value, while default risk is the risk that the issuer will not be able to pay interest and/or principal. Keep in mind that the government...more

Beware the Bond Bubble

Beware the Bond Bubble

The hissing sound you are hearing may not be the final death call from the stock market, or more specifically the Tech Bubble bursting from January 2000, but may instead be the beginning of the Bond Bubble about to burst. Investors have pulled money from the stock market and moved into taxable bond funds to the tune of around $100 billion this year alone; and that is on top of 2001's record pace of $86 billion. In these uncertain and turbulent times, investors are flocking to investments they...more

When Is Flat Really Flat?

When Is Flat Really Flat?

The bond market is behaving as if the economy is facing future troubles. Amid expectations that economic growth will slow and the Federal Reserve will stop raising the federal funds rate, long-term interest rates dropped below short-term rates. Recently, the yield on a 10-year Treasury note (4.343%) temporarily fell below that of a 2-year Treasury note (4.347%), a rare event. The technical term for this is an "inverted yield curve." Typically the yield curve is upward sloping with...more

The Cost of Waiting for Higher Rates

The Cost of Waiting for Higher Rates

Not many investors can get excited about investing in bonds with interest rates near their 50-year lows. But rates have risen recently, so many investors are struggling with the question of whether to invest now or hold out for the possibility of capturing even higher yields down the road. While no one can predict when and by how much interest rates will change, the cost of waiting is quite clear. The Time Value of Money The old saying goes, 'A bird in the hand is worth two in the bush.' The...more

What Happens to Bondholders When a Company Goes Bankrupt?

What Happens to Bondholders When a Company Goes Bankrupt?

Seniors like bonds because they can possibly provide a steady income, diversify a stock portfolio, and are backed by the insurer's financial strength. But things don't always go as planned. Companies occasionally have financial problems and must file for bankruptcy. Investors holding bonds in bankrupt companies can at least have the comfort in knowing that as unsecured creditors they are second in line for payment. Secured creditors, those with claims backed by collateral, such as...more

Time To Cash In Your Old Savings Bonds?

Time To Cash In Your Old Savings Bonds?

If you have held on to your old E bonds, H or HH bonds, or Savings Notes (Freedom Shares), it may be time to do something about them. Some of these bonds are no longer earning interest and may even cause you tax problems. According to the U.S. Treasury Department, there are about $12 billion in outstanding U.S. savings bonds out there no longer earning interest. How do you know if yours are among this group, and what can you do about it? Check your old bonds. The federal government began...more

When Interest Rates Rise, Bond Ladders Are Ideal

When Interest Rates Rise, Bond Ladders Are Ideal

If you invest in bonds and certificates of deposit, you may be dismayed at rising interest rates of late. But it's not all bad news for your fixed income investments. There is a way to proactively deal with the situation and come out ahead. For years, financial planners have been recommending a strategy known as bond laddering. What is a bond ladder? Think of a seesaw. When interest rates rise, the value or price of a bond falls below its par or face value (assuming you bought it new). That's...more

Tax-Free Investing with Municipal Bonds

Tax-Free Investing with Municipal Bonds

Keeping more of the money they?ve worked so hard for is important to most individuals. For this reason, investing in vehicles that are exempt from federal taxes can be very attractive. One of the very first tax-advantaged investments, municipal bonds, is still one of the most popular today. Municipal bonds are debt obligations issued by states, cities, towns, or public commissions to provide money for schools, hospitals, and other public works. These securities provide income that is free...more

Municipal Bond Strategies

Municipal Bond Strategies

There are a number of municipal market inefficiencies that can bring value to laddered municipal bond accounts relative to other account managers or mutual funds. Aggregating the cost/benefit of these inefficiencies can potentially add a significant amount of incremental yield to a municipal portfolio. Secondary Market Bonds While many believe new issue bonds and access to the new issue market are a very important part of muni bond investing, for individual investors and small- to...more

Bond Ladders: Generating Income with Bonds

Bond Ladders: Generating Income with Bonds

Even though it's our ability to take risk that helps earn greater returns in the market, most investors are never quite comfortable with risk. For investors who don't need to take additional risks, the answer most often, is to create a laddered bond portfolio- consisting of Corporate, Government, or Municipal Bonds. Depending on the clients? risk tolerance and tax status, certain types of bonds may be preferred. 15599bond1.jpg The "ladder" is created by staggering the maturity dates...more

3 Ways to Get Your Portfolio Ready for Ebola, ISIS, or the Next Crisis

3 Ways to Get Your Portfolio Ready for Ebola, ISIS, or the Next Crisis

Between ISIS and Ebola, it seems like the world is in crisis. How can you prepare your investment portfolio to withstand anything? Between ISIS, the Ebola outbreak, Russia in the Ukraine and a persistently weak Europe, it might sometimes feel like the worlds, and your portfolio, are in constant peril. Especially after the financial crisis, where most investors experienced the fear and market drops firsthand, looming problems around the world can feel just as unpredictable and unmanageable...more

Additional Portfolio Management Resources