Portfolio Diversification: Fixed Income Investments Can Add Stability to Your Portfolio

Balance is as important in your portfolio as it is in riding a bike. For many investors, fixed income investments can help achieve the desired balance by helping reduce portfolio volatility and provide regular income.

Asset allocation is key

Fixed income investments, including bonds, are an important component in reducing investment risk in your portfolio as bond prices and stock prices often move in opposite directions and bonds provide income. How you allocate your portfolio among stocks, bonds and cash will depend on your individual circumstances and financial goals as well as how much risk you are willing totake.

As part of the financial planning process, you’ll want to work with your Financial Advisor to develop an asset allocation plan customized to your needs. As your circumstances change over time,your Financial Advisor can work with you to adjust your asset allocation plan. For example, as you get closer to retirement, it may be important to increase your fixed income allocation to helpreduce investment risk.

Broad selection available

Investors can choose from a wide variety of taxable and tax-exempt fixed income instruments, including bonds issued by corporations, states, municipalities, FDIC-insured banks, federally sponsored agencies and U.S. Treasury securities.

Investors might select bonds for their portfolios for a number of reasons:

• Bonds provide a steady income stream and have historically been less volatile than stocks.

• Holders of fixed income securities can sell their bonds in the secondary market. Note, though, that bonds sold prior to maturity may be more or less than their original cost and may generate gains or losses.

• Bonds have a known maturity date and typically provide regular interest payments on specified dates.

• Investors can select a rate of income that suits their individual needs.

• Literally thousands of bonds are available from various issuers, with maturities as short as one month or as long as 50 years or more.

• Most municipal bonds are free of federal income taxes, and in some cases from state and local taxes.

Review allocations with your advisor

If your portfolio doesn’t include fixed income investments, talk with your Financial Advisor to determine what role these securities should play in your portfolio. If your investments do includefixed income securities, review your portfolio with your advisor on a regular basis to determine how current market conditions may affect your allocation mix and make the necessary adjustments.

* Diversification does not assure a profit or protect against loss.

Article provided by Robert W. Baird & Co. with the authorization of its author for Evan Guido, Vice President, Financial Advisor at the Sarasota office of Robert W. Baird & Co., member SIPC. The opinions expressed are subject to change, are not a complete analysis of every material fact and the information is not guaranteed to be accurate. 

Evan R. Guido

Vice President of Private Wealth Management

One Sarasota Tower, Suite 806

Two North Tamiami Trail

Sarasota, FL  34236-4702

941-906-2829 Direct Line

888 366-6603 Toll Free

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