In the current low interest rate environment many investors are “reaching for yield” by increasing their exposure to bonds with greater credit risk as a means of generating higher income or pursuing higher expected returns. Corporate bonds are an extremely valuable tool for managing risk, but caution is in order.

For most individual investors, the purpose of holding fixed income securities is portfolio stability. Bond returns are generally far more stable than equity returns. A custom portfolio can be created with just the right “dose” of bonds to reduce the volatility inherent in stocks to a level suited to each investor’s preference.

Investors can further refine their portfolio to match their tastes by considering different segments within the bond market. Tax sensitive investors can utilize municipal bonds. Investors worried about unexpected inflation can invest in TIPS, while those who prefer broader international diversification can tilt their holdings toward dollar-hedged foreign bonds. Investors less sensitive to credit risk can pursue expected returns above those of government bonds by tilting their bond portfolio toward high quality (investment grade) corporate bonds.

Also In This Issue

A Reader Inquires: AT&T And The HYD Model
Interest Rates, Conventional Wisdom, And Your Portfolio
Investment Fallacies
Sound Money, Property Rights, And Sound Investing
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Recommended Investment Vehicles