Investing in Bonds

Bonds are an important component of a fixed income portfolio. They provide a steady, well-defined income stream for a given period of time. We have a strong preference for buying individual bonds and holding them to maturity, as opposed to investing in a bond mutual fund.  In a period of low but rising interest rates, such as the present, a bond mutual fund can lose principal value.  Holding individual bonds to maturity avoids this problem; you can be certain of your return, as long as the issuer does not default on its payments.

Our experience suggests that corporate bonds with ratings in the BB to BBB range offer relatively attractive yields with limited risk of default as long as they are researched carefully.  Depending upon the yield curve, we typically buy bonds with a 2 to 6 year term until maturity.