I’ll be spending this holiday weekend with family, enjoying the last days of summer outdoors and preparing a meal or two on the grill. What do Labor Day grilling festivities and investing have in common? Plenty. Preparing the perfect meal requires an optimal balance of nutrients, just like building a portfolio requires the right savory combination of investments. Here’s how I would prepare a fixed income mixed grill.
Chicken as Treasuries
The most basic protein, chicken, is a fixture of any barbecue menu. The same can be said for Treasuries in a bond portfolio. Treasury securities, in a variety of maturities, provide more safety than any other investments as they are backed by the full faith and trust of the U.S. government, do not have a call provision, and provide a dependable income stream. They are also the ultimate diversifier for equities and other tasty higher-risk dessert items.
Investment Grade Steak
Just like a prime, choice, or select cut of beef, there are investment grade bonds that are rated according to credit quality. Investment grade describes bonds that are “AAA” or “AA” (high credit quality) and “A” to “BBB” (medium credit quality). As with those who love a good steak, investment grade bonds suit those who seek high quality in exchange for less risk. It may not be as lean as chicken, but it may provide a little more flavor in the form of extra yield.
High Yield Ribs