A Classic Core Approach for Fixed Income Exposure

Investors are picking themselves up in 2019 after a tumultuous way to end 2018. The Dow Jones Industrial Average fell 5.6 percent, while the S&P 500 was down 6.2 percent and the Nasdaq Composite declined 4 percent.

2018 marked the worst year for stocks since 2008 and only the second year the Dow and S&P 500 fell in the past decade. In 2019, investors are no doubt reassessing their strategies for how to distribute their capital through the rest of the year.

As markets have cycled out of the growth and momentum-fueled investments of 2019, a move to more quality-oriented investments are in order. Identifying these quality-based investments, however, will require more due diligence.

The end of 2018 also spurred a move to bonds as investors sought after safe-haven alternatives amid the volatility. One corner of the bond market that especially saw an influx of capital was short duration bonds.

However, if investors want more duration to core bond exposure, they might want to consider the iShares Core Total USD Bond Market Index (NasdaqGM: IUSB).

IUSB seeks to track the investment results of the Bloomberg Barclays U.S. Universal Index. The fund generally will invest at least 90% of its assets in the component securities of the underlying index and may invest up to 10% of its assets in certain futures, options and swap contracts, cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates, as well as in securities not included in the underlying index, but which BFA believes will help the fund track the underlying index.

Furthermore, the index measures the performance of U.S. dollar-denominated taxable bonds that are rated either investment-grade or high yield.

“It includes high-quality bonds, but it also includes a small component of lower-quality higher-yielding bonds,” said Morningstar’s director of personal finance Christine Benz. “So, in that respect, it’s a little better diversified than the total bond market trackers. Of course, those high-yield bonds will also come with a little bit of extra risk.”

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