A solid asset allocation strategy often includes investments from a wide range of investment classes, the broadest of which include stocks, bonds, and cash. Investing in bonds can be an important element in your investment portfolio, helping to potentially:
- Reduce fluctuations in your portfolio value
- Enhance investment income
- Prepare for future expenses
Investing in bonds can help achieve many different investment goals, including income generation, portfolio diversification, and even growth.
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The bond market offers many choices, so it’s important to have a clear picture of your goals before you begin selecting individual bonds to invest in. A comprehensive financial plan can help forecast lifelong cash flow needs, illustrating all the money you will receive and spend in your lifetime. Illustrations use prudent assumptions to protect against inflation and use realistic returns.
Traditional interest-bearing bonds pay interest on a regular basis, typically semi-annually, quarterly, or monthly. The payments from these bonds are fixed, which means the amount you receive with each payment generally remains the same.
Things to consider when purchasing bonds.
- Regular income
- Potential tax benefits
- Preservation of principle
Finally, if you’re looking for preservation of principle, bonds should be seriously considered as a part of your investment portfolio.
U.S. Treasuries are debt obligations issued and backed by the full faith and credit of the US government.
Agency bonds are securities issued by a government-sponsored enterprise, or by a federal government department other than the U.S. Treasury.
Municipal bonds (munis) are debt securities issued by a state, municipality or county, to finance its capital expenditures including the construction of airports, bridges, highways, or schools. They can be thought of as loans that investors make to local governments. Munis are attractive to investors in high tax brackets who may benefit from the tax-exempt income.
Corporate bonds are debt issued by a company in order for it to raise capital. An investor who buys a corporate bond, is essentially lending money to the company in return for a series of interest payments.
High yield bonds are bonds rated below investment grade. These bonds have a higher risk of default or other adverse credit events, but offer higher yields than better quality bonds in order to make them attractive to investors.
Bonds are often used for their ability to generate income, but it’s also possible for them to turn into growth investments. This happens when interest rates drop below the interest rate the bond is receiving, which makes it an appealing investment for other investors and allows the investor holding the bond to sell it at a premium.
Fixed income securities have certain risks that are borne by the client, such as market risk if sold prior to maturity and credit risk, especially if investing in high yield bonds which have lower ratings and as a result, are subject to greater volatility. All fixed-income investments may be worth less than the original cost upon redemption or maturity.
Association Financial, LLC, and Association Financial Services, LLC, can provide you with a wide range of advisory services (whether fixed or variable investments), including:
- Annuity selection (fixed or fixed-indexed)
- Assistance in deciding when to buy and sell your investments
- Review of insurance and investment portfolios, as well as transferring assets or qualified plan rollovers
- Individual bond, commodity, equities (stocks), ESG stocks, Exchange Traded Product (ETP), investment trust, and REIT selection
- Strategic asset allocation strategies including re-balancing
- Attorney and CPA services
- and much more.
Contact us here for more information.
Investing in securities involves risk of loss that clients should be prepared to bear.