Why Fixed Income Makes Sense in Your Portfolio

By Brian Therien November 01, 2017

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With the stock market performing well in recent years and interest rates still relatively low it can be easy to forget about the benefits of fixed-income investments. However, identifying and maintaining the right mix of stocks and bonds is one of the most important investment decisions you can make. Whether you own bond mutual funds, ETFs or individual bonds, fixed-income investments can help provide important benefits for your portfolio:

Diversification

Bond prices tend to move in different directions from stock prices, especially during stock market downturns. This relationship can help reduce your portfolio's volatility relative to the risk assumed. However it's important to note that high-yield, or "junk", bonds generally provide less diversification benefits than investment-grade bonds.

Bond Returns in Down Stock Markets

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Source: Morningstar Direct. Stocks represented by the S&P/TSX Index. Bonds represented by the FTSE TMX Canada Bond Universe. Past performance is not an indication of future returns. Bonds may be subject to certain risks, including interest rate risk, credit risk, reinvestment risk, market risk and currency risk. The values of bonds fluctuated, and you may lose some, or all of your principal.

Stability

All investments have risks, but bonds are generally less risky than stocks. This means that bonds typically fluctuate in value less than stocks, which can reduce risk in your portfolio. As a result, bonds can provide stability in the value of your portfolio.

Income

Most bonds pay regular interest payments that can be a steady source of income. This may become more important as you approach retirement. If you don't need the income currently, you can choose to reinvest these payments. As a word of caution, while high-yield bonds may offer more income, they also generally carry more risk.

While you can't control the markets, you can control your investment mix.

This is why we recommend that you review your portfolio regularly with your Edward Jones advisor. Since stocks have done well over the past few years, they may now be a bigger part of your portfolio than you intended – and you may need to rebalance your portfolio to the mix that’s right for you.

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