Uncertainty is in the air, particularly if you’re a fixed income investor. As BlackRock’s Chief Investment Strategist Russ Koesterich wrote earlier this week, bond investing is different today than it was in the past. And that may well mean that what you were doing in the past, doesn’t work quite the same (or as well) as it used to.
This is precisely one of those times you should be talking with your financial advisor. What should you ask him/her? Three things (at least.)
1) Does a changing market mean it’s time to change my fixed income portfolio? The answer might be yes. Your financial advisor can help you assess your current fixed income allocation to determine not only the types of bonds you hold, but the types of risk. Fixed income investing comes with two primary risks: interest rate risk (the risk a bond will lose value as interest rates rise) and credit risk (the risk that a bond issuer will default and be unable to make payments to bondholders). Different types of bonds will carry these risks in different degrees. You should be aware of those differences and how they manifest in your portfolio. You’ll also want to assess the current economic and market environment to help you discern which risk may be looming larger. Knowledge is power — you need to know what you own, inside and out. Your advisor can help you evaluate whether the tools you are using are well suited for the job you want to get done — and importantly, for the current investment backdrop.
2) What are my fixed income options today? The environment for income seekers is not as plain vanilla and one dimensional as perhaps it once was. In today’s low-yield world, U.S. Treasuries aren’t likely to provide the level the income you seek all on their own. Fortunately, there are ample tools available for fixed income investors today, and you want to ensure you are using them to your greatest advantage. You might consider unconstrained income strategies, international bonds, municipal bonds, exchange-traded funds (ETFs) or, ideally, a blend of passive ETFs and active strategies that allows you greater flexibility and enhanced affordability in managing your market exposures. Equally important: working with an investment manager who is able to offer you these options and the expertise to navigate the prevailing landscape.