Bonds as Fixed Income Investments
Adding bonds to a portfolio may result in an important level of diversification. Bonds provide investors with a wide range of investment opportunities that can complement a portfolio. Also known as fixed income investments, bonds are loans investors make to issuers, which can include governments, municipalities, corporations or other entities.
Bonds can also serve some very specific investment needs, such as providing retirement income. Associates of Global Wealth Partners Inc®, who offer securities through DFPG Investments, LLC, can help you determine if adding bonds to your portfolio may be right for you, and then offer bond investments that are suitable to your needs.
Why Fixed Income?
Historically, bonds have demonstrated less volatility than stocks. Less volatility may increase the likelihood that investors meet their objectives at any given point in time. Bond returns often have a low, and sometimes negative correlation to stock returns. In other words, they react differently than stocks to market and economic conditions. The result is an overall balancing of a portfolio. So while you may sometimes be tempted to pursue stock market performance in lieu of bonds, over the long term you may be better served by staying properly diversified.
In addition to the potential benefit of diversification, many investors seeking monthly income choose fixed income investments to provide that income stream. Income streams can vary depending on changes in the underlying bonds and their payments. Those who don’t need the income each month often choose to reinvest the dividends.
Dividend payments can be used to supplement retirement income or even to handle current expenses. If these are your goals, then it may be important to select fixed income investments with a payment schedule tailored to your needs. Most individual bonds pay a stream of income through semi-annual payments, however some issuers now offer bonds that pay monthly or quarterly interest.
Fixed Income Considerations
There are many factors that affect the value of fixed income investments. The most significant of these factors is interest rates. When interest rates rise, the value of existing bonds falls. Conversely, when interest rates fall, the value of existing bond investments rise. Similarly, inflation also plays a role in affecting the value of bonds. For example, a change in inflation forecasts may affect bond values, even before it affects interest rates. Additionally, economic conditions may have an affect on the value of the bonds you hold, particularly on corporate bonds. Economic troubles may affect the ability of a company to make interest or principal payments.
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