Fixed income investments offer a more reliable return than many other investment vehicles. They can provide real return rates or periodic income at regular intervals.
As fixed income investments, bonds can play an important role in a well-diversified portfolio, helping minimize its overall volatility. They may provide predictable income and, most important, principal protection.* Bonds may be either taxable or non-taxable.
We often recommend including municipal bonds, or “munis,” in our clients’ portfolios. Munis are debt obligations issued by governmental entities – such as state and local governments – to fund the building of highways, hospitals, schools, sewer systems and other public works projects. They are especially attractive to investors in high tax brackets because, in most cases, the interest income is excluded from federal income tax calculations. If an investor owns municipal bonds issued within his or her state of residence, interest income may also be excluded from state and local taxes.
In determining the allocation of bonds in any given portfolio, we carefully consider the client’s preferred time horizon, risk tolerance, need for income and future goals.
*If held to maturity, subject to issuer credit risk. The market value of bonds is subject to market fluctuation and may be worth less than the original cost upon redemption (or maturity).
There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices generally rise. Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes.
We can help you integrate these core investments into your custom financial plan using a process that is defined, focused and disciplined.
Related Resources
Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation.
Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value, barring default or an early call at the issuer’s option. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise.
Income from municipal bonds is generally not subject to federal income taxation; however, it may be subject to state and local taxes and, for certain investors, to the alternative minimum tax. Income from taxable municipal bonds is subject to federal income taxation, and it may be subject to state and local taxes.
U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, typically offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
