Sizing Up the Bond Market
When you go shopping for pants, do you buy one pair in every size available? Most people do not, presumably because only one size is the most appropriate fit.1
For many investors, bond portfolios should be similarly well-fitted. Bonds help manage risk, and risks are often specific to the individual. Some investors may be saving for an upcoming down payment on a house, while others may be funding liabilities further in the future like college tuition or retirement spending. A strategy focused on shorter maturity bonds may be most appropriate for the former, while the latter is typically better supported by a strategy with bonds maturing at a longer time horizon.2
For that reason, index-based strategies tracking the broad bond market make little sense for most investors. Bloomberg’s U.S. Aggregate Bond Index, for example, comprises bonds maturing in anywhere from 12 months to over 30 years. Bond strategies taking a more targeted approach to security selection may help investors better tailor their portfolios to financial goals.
Source: Bloomberg.
Footnotes
- 1Does anyone else still have childhood memories of their mom asking if the pants fit ok in the seat?
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2Tuition funding may require lottery tickets at this point.
Disclosures
All expressions of opinion are subject to change. This information is not meant to constitute investment advice, a recommendation of any securities product or investment strategy (including account type), or an offer of any services or products for sale, nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions.
Diversification neither assures a profit nor guarantees against loss in a declining market. Fixed income securities are subject to increased loss of principal during periods of rising interest rates and may be subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors.
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