Fixed Income Essentials

Help investors understand opportunities in today's fixed income environment.

Strategies for diversifying fixed income assets

Keep in mind that diversification does not guarantee against a loss.

Four strategies to consider

  1. Anchor

    Anchor your portfolio with high-quality bonds

    Investors are often tempted to time markets as market dynamics change. Rather than abandoning bonds in favor of stocks, investors should focus on the role bonds play in a diversified portfolio—income, total return potential, and an offset to equity volatility.


    Diversifying your portfolio with actively managed high-quality bonds may be an appropriate strategy as they can enhance total return potential by adjusting the amount of credit and interest rate risk. Historically, high-quality bonds have performed well when stocks have declined, and typically have provided steady income.

    Historically, bond returns have helped offset stock declines
    -50 % -40 % -30 % -20 % -10 % 0 % 10 % ‘29 ‘30 ‘31 ‘32 ‘34 ‘37 ‘39 ‘40 ‘41 ‘46 ‘53 ‘57 ‘62 ‘66 ‘69 ‘73 ‘74 ‘77 ‘81 ‘90 ‘00 ‘01 ‘02 ‘08 Stocks Investment-Grade Bonds
  2. Non-core

    Explore non-core income options

    In a low-yield environment, building a portfolio with the potential to generate income may mean exploring non-core income options.


    For investors who can tolerate more risk, adding non-core income assets may offer higher income potential as well as diversification benefits such as lower sensitivity to rising rates.


    • High-yield bonds
    • Emerging-market debt
    • Leveraged loans
    • Real estate securities
  3. SHORT

    Use short-term bonds to help lessen interest rate sensitivity

    Seeking income, many investors have turned to long-term bonds. However, long-term bonds usually have greater sensitivity to rising interest rates.


    Diversifying with short-term bond funds may help reduce the impact of rising rates.

    Short-duration bonds generally hold their value better as rates rise
    Short Treasury: 3-6 MonthsU.S. Treasury: 1-3 Year IndexU.S. Treasury: 10-20 Year Index0%-5%-10%-15%-20%-25%-30%-35%1% Rate Increase2% Rate Increase3% Rate Increase
  4. Municipal

    Add municipal bonds

    Municipal bond funds have historically provided attractive benefits—tax-free federal income that can add total return and attractive diversification benefits—due to their low correlation to stocks and other fixed income investments.


    Investing in high-quality municipal bonds may reduce credit risk and volatility. Extensive credit research is instrumental in identifying financially sound issuers and potentially avoiding defaults.

    Even without adjusting for taxes, municipal bonds have outperformed taxable bonds 50% of the time over the last 15 years.

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