Principles of fixed-income investing

There’s more to investing in fixed income than watching interest rates. Here are three principles to follow.

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There’s more to fixed-income investing than focusing on current interest rates. Focusing on our three investment principles, can help you be better positioned to achieve reliable income with less principal fluctuation which can help reduce overall portfolio risk.

When are individual bonds appropriate?

Individual fixed-income securities tend to be less liquid and therefore require a larger portfolio to better diversify by maturity, type and sector. We recommend clients consider individual bonds only if they have at least $50,000 to allocate to the income investment category. This allows for proper diversification by building a portfolio of at least 10 bonds in minimum increments of $5,000. Clients with smaller portfolios or who are seeking exposure to aggressive income should consider bond funds or exchange-traded funds. Clients can also consider a hybrid approach of owning a few individual bonds to compliment a diversified fixed-income portfolio of mutual funds or exchange traded funds (ETFs).

Fixed-income investing principles:

*A make-whole call provision allows bonds to be called at any time, but issuers have to pay a higher premium to redeem bonds when interest rates are declining. It makes bondholders “whole” by providing compensation for missed interest payments due to the call. Since issuers aren’t expected to use a make-whole call, it provides better call protection for investors than typical callable bonds.

Before investing in bonds, you should understand the risks involved, including interest rate risk, credit risk and market risk. The value of bonds fluctuates, and you may lose some or all of your principal.

Diversification does not guarantee a profit or protect against loss.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.