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Where to Invest – Fixed Income

Where to Invest – Fixed Income

The same questions 

·      Will the economy finally stabilise or tip back toward recession?

·      What will inflation do?

·      When will interest rates go up?

·      What is the impact of ‘the fiscal cliff’?

The basic types of fixed income investments are examined in the next paragraphs.

Best bond funds for rising interest rates 

The best way to invest in bond funds during rising interest rates is to either focus on short-term and intermediate-term bond funds, or to diversify with various types of bond funds. By using bond funds with shorter average maturities, the negative effect of falling prices is minimised. Theoretically, the longer the maturity, the more prices, or the mutual fund’s net asset value (NAV) will fall as interest rates rise. Investors can consider a good short-term bond fund, such as PIMCO Low Duration D (PLDDX) or an intermediate bond fund like Harbor Bond (HABDX).

Bond Laddering Strategy

Bond Laddering is a fixed income investment strategy where the investor purchases individual bond securities of various maturities. Similar to CD (certificate of deposit) laddering the primary goal is to reduce interest rate risk and increase liquidity. The optimum time to use bond laddering is when interest rates are low and expected to rise in the near future. For example, a bond investor will not tie up all of their savings in one low-yielding bond for too long. If interest rates are expected to rise the bond investor will be able to purchase higher yielding bonds as each individual bond in the ‘ladder’ matures.

How to research and buy bonds

All of the knowledge, terminology and complexity involved with bond markets can be accessed and made simple with a handful of simple strategies and a few useful websites. There are bond analysts and credit agencies that do most of the work for you and therefore the bond investor only needs to know where to look and how to interpret the information that already exists.

If you do require assistance, talk to the experts at Compare The Financial Markets.

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