Doug Drabik discusses fixed income market conditions and offers insight for bond investors.
Sometimes I think we over-complicate things. We try to outsmart, over-analyze and short cut our way to the finish line. It is easy to fall prey to promises of instant gratification even if it is a distraction from our long term goal or purpose. Do you buy a lotto ticket for the entertainment value and fantasy outcome or is it your end play to meet your objective? You might lend your coveted power tool to a neighbor friend because you believe and trust it will result in its unharmed return. Are you as quick to lend that coveted power tool to a friend of a friend? Clearly some apprehension crops up because uncertainty is greater.
Your long term investment plan, although unique in detail, probably bares some simple objectives: work hard and/or smart to build cash, risk that cash in investment or business to accelerate growth, accumulate enough capital to take care of yourself for the remainder of your life and hang on to that wealth.
Individual bonds represent one of the more optimal means to maintaining your principal (hang on to your wealth). Look at that from a reverse angle. Individual bonds’ income is part of save and protect, not part of chance or gamble. It is not necessarily the part where you take risk in order to accelerate or grow your cash. It is the allocation designed to keep/protect your wealth.
Borrowing from your fixed income allocation to try to accelerate your growth allocation may work out… or not. The objective of maintaining wealth can be negatively impacted when risks are taken via alternatives.
TINA, a well used acronym for there is no alternative, can prove to be a dangerous pursuit of trying to do too much instead of what needs to be done. With interest rates near historic lows and the stock market’s seemingly infinite pinnacle, there is a temptation to move all allocations to the current money multiplier. Do not! Your future is shaped by your actions, not your intentions. Keeping disciplined allocations provides optimal potential growth as well as optimal protection of money you simply don’t want to risk losing and having to raise it all over again.
To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.
The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.
Stocks are appropriate for investors who have a more aggressive investment objective, since they fluctuate in value and involve risks including the possible loss of capital. Dividends will fluctuate and are not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
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