Investment Choices? A Bond for Everyone

Lightening never strikes the same place twice. Or so you may think, until you begin investing. Fortunately, fixed income securities mitigate many of the risks associated with the uncertainty of amount and timing of cash flows.

From the practically risk less T-bonds to the highly speculative Junk Bonds, there is a continuum of rates of return to match almost every risk profile. Your choice of a particular bond depends upon your:

1.Investment Objectives: These may vary from short-term profit-taking and speculation to current income or capital accumulation for future needs.

2.Investment Strategy: Your attitude towards risk makes you aggressive, moderate, or conservative. While cautious investors limit themselves to investment grade bonds, the aggressive ones trigger activity in the high yield securities.

3.Age and Income: Generally, older or retired investors have a higher proportion of their assets in bonds. Your income level and the tax bracket you fall in not only determines your preference for certain types of securities such as tax-free municipal bonds but also the choices available to you because of minimum investment levels.

Based on these, you would evaluate alternative bond investments on parameters such as maturity, redemption features, price, interest rate, yield to maturity, credit quality, tax status etc.

Your portfolio may be an assortment of individually picked bonds, a Bond Fund or UIT, or perhaps a blend of bonds and stocks. Generally, investing in individual bonds is best for preserving your capital assuming they closely match your other objectives (like maturity) but you will lack the professional management of your capital. On the other hand, bond funds offer convenience and diversification but you will have little or no control over how your money is invested. Taking bonds and stocks together will help reduce your overall investment risk and provide better returns because of exposure to a host of investment opportunities.

High-quality bonds typically provide better returns during recessions, because their prices rise as interest rates fall. Even for the high-yield bonds, the volatility of returns is usually less than stocks. That makes them an ideal diversifying tool in a long-term, income-oriented investor's portfolio because the market swings both ways.

Investors should review their portfolios from time to time to make sure that their asset mix continues to meet their investment objectives while their decisions still fit into the broader perspectives of economic and capital market conditions, and industry and company performances.

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