When looking into investing, individuals, banking institutions, corporations and even government entities, rely on investing their hard-earned money in the bond market for “safer” and higher returns. Everyone’s main focus is on getting the best investment returns, but the “funny” thing is that sometimes there is no well-defined plan or strategy or either one gets completely neglected, missing the right investment guidance required to really help avoid most risks and truly achieve a fair return.
The fixed income investments are a wonderful way for fiduciaries to minimize risk and see steady interest income over time. But just like any money-making opportunity, this comes with a risk. And this is why, the individuals and fiduciaries like State and County Treasurers, CFO’s of Non-Profit’s and Corporations, and others that invest in the bond market, tend to pay extra money to the “experts” in order for them to look after their investments and the possible best strategy that would ensure them the best return. Well, we say it is about time for you to get more knowledgeable on this matter, and identify the key variables that will contribute to a strategic investment plan. After all, doesn’t it make sense to be more hands-on the money you are putting aside to hopefully see grow if there is no risky situation that makes you lose it all?
You would also think that by now, with all the financial technology being developed, wouldn’t there already be something that helps you better with your investments?
Well, there is, and PFITR is developing that for you. This blog post will focus on the elements of a good strategy for a better fixed-income investment portfolio which includes an improved strategy accompanied by education and technology. And before we directly jump into this topic, we must understand that bond investors face many risks such as: credit risk, interest rate risk, inflation risk so on, and I would suggest you read about a couple of these different types of risks in my previous blogs, before continuing to this article for better understanding the reasons why you would need to partner with an experienced and knowledgeable team like PFITR’s, like this one: “One smart tool to mitigate your Bond Investment Risks”
Investment goals should depend on your willingness to take risks either by investing in a short term or long term instrument.
But one thing that you need to remember is that, while considering any bond investment, you should always focus on diversification. As a general rule, it is never a good idea to put all your assets and all your risks in a single asset class or investment, and it is advisable to diversify the risks within your bond investments by creating a portfolio of several bonds.
To diversify will protect you from the possibility of losing all your money if any of the possible risks that expose your investments, actually occurs. Like when any one issuer will be unable to meet its obligation to pay interest and principal, if inflation occurs, or if interest rates continue to rise and the value of the bonds continues to decrease, we will continue to lose more than the already lost 3 Trillion dollars (phenomenon after the US Presidential election). But when you choose different types of bonds, you will protect your money from the possibility of losing it all by having only one type of investment that could get hit by any particular market risk.
If you are thinking of investing in only treasury bonds, then you should also diversify your investment by purchasing different maturity dates.
Now, let us understand some of the most popular strategies, which can help keep your fixed income portfolio on track.
This involves investment only in the combination of short term and long term bonds, but not in the intermediate bonds. It’s a strategy that combines the prime advantage of investing in short-term bonds which are highly liquid and on another hand to opt for investment in long-term bonds which generally have a higher yield.
If you are an active trader then this is the best strategy for you because these investments require regular lookup for new bonds to invest as the short-term bonds reach maturity.
This involves investment in the combination of short-term, long-term, and intermediate bonds. Here the bonds mature at different times and you continually reinvest them. It is more like a passive strategy that requires you to structure a portfolio of bonds with different maturities over a specified time-period.
The idea of laddering is that each year one portion of the portfolio matures. If the funds aren’t needed at that point, they are reinvested.
The main advantage over here is that you get a periodic return of principal that help you in additional investment flexibility, returns can be invested in additional bonds and your exposure to interest rate volatility is reduced because your bond portfolio is spread across different maturities.
This strategy is for those who are confident and who want to experience all by himself and yes, you must be an active trader as well to see the ups and downs in the bond market.
This is an aggressive investment strategy that involves bond investments at different times but has the same maturity date.
Here you may receive the entire returns at once upon maturity, but you are exposed to fluctuating interest rates, especially bonds with the longer maturity.
This strategy is best for those who are looking for bulk returns at once and who are ready to face any kind of risk associated with that.
These are some of the most advisable strategies that you can follow as per your investment needs, and it is always good to stick to one strategy and keep a track of it because once the bonds mature you can purchase new bonds in accordance with your plan.
If you are not sure and don’t know what you are doing, then it is always good to get help from professionals. They can help you with your investment strategy, and in some cases, you can turn over the strategy to that expert completely. But it is important that you do not end it there, you must be informed! You must acknowledge the risks even of fully trusting the people you are paying to manage your portfolio (they manage more than one), and therefore, we recommend you to be equipped with the necessary data.
At PFITR, we did not just develop a software solution for unbiased bond market information, that you should get your hands on to have direct access to real-market and current information, but we also care to coach you on how the best investment decisions are made. We believe that with the right use of knowledge and technological tools like the Bond Price Validation tool, anyone can master the best practices for fixed income investments, you just need the best guidance and software solutions there are.
Why don’t you see it for yourself by giving a call or sending an email with your questions?
You can call us at 1-800-921-1992 or email us at firstname.lastname@example.org
To know more about PFITR and our technology tools, please visit https://pfitr.com/bpv-tool/