If you're a Rim Country fixed-income investor, you'll eventually have to answer a key question:
What should you do with bonds that mature when market interest rates are low?
Instead of worrying about the haze of interest-rate movements and how you should respond to them, consider an "all-weather" fixed-income investment strategy.
Specifically, think about building a "bond ladder."
To create a bond ladder, you invest in an array of short, intermediate and long-term high-quality bonds. When rates are rising, you use the proceeds from your maturing bonds to buy new bonds at the higher levels, thus increasing your portfolio's return.
When market rates are falling, you'll continue to benefit from the higher rates offered by your longer-term bonds.
By building a bond ladder, you'll also receive other key benefits:
- Reduced volatility. When you construct a bond ladder, you achieve a degree of diversification in your fixed-income holdings.
- Reduced interest-rate and reinvestment risk.
- Increased investment discipline. When you create a structured investment plan, such as a bond ladder, you'll help yourself stay true to your long-term goals.
- Income stream suited to
your needs. By carefully structuring your bond ladder in a way that generated interest payments that match your needs, you can help address some of your savings and budgetary concerns.
If you knew exactly where rates were heading, you'd always be able to make the right fixed-income investment moves. But, since nobody can really "see through the clouds" to accurately predict the direction of interest rates, you're far better off by dropping out of the "guessing game" altogether.
Better yet, climb out, with a bond ladder.
-- Scott Flake is a licensed investment representative with the firm of Edward Jones. For more information, call him at (928) 468-1470.