Determining What is Right for You
After a difficult year filled with uncertainty fueled by the pandemic, investors are searching for answers about what lies ahead. One of the most frequently asked questions is whether or not bonds are a good investment in 2021. While you may have recently read articles or seen commentaries which suggest that bonds are not where you want to be invested right now, it can be helpful to remember that “one-size-fits-all” statements may make for attention-grabbing headlines, but do not necessarily address the needs of the individual.
There are many factors that go into our bond strategy for your portfolio. Fundamentally, bonds are low risk, interest-bearing investments that can provide a measure of safety within your portfolio. We first think through your specific investment goals and risk tolerance. Factors such as your investment time horizon, your ability to earn income now and in the future, your need for liquidity, and the other available resources or assets you have should all be taken into account. Then we consider variables such as the types of accounts you have (taxable vs. tax deferred), and the current environment and future forecasts for interest rates, inflation, and default rates.
Based on the above analysis, we are constantly updating your investment strategy within your bond portfolio when appropriate. This includes trying to minimize the downside risks of bonds. Some ways to protect against these risks include inflation protection or bonds with ultra-short maturities that protect against interest rates rising. There are also a number of other hedging strategies we use to protect your bond allocation.
Remember, there is no “one-size-fits-all” answer to investing in bonds. Our strategy customizes your bond investments to reflect your portfolio and individual goals. If you have any questions about the role bonds play in your portfolio, please contact us.