A Quick Reminder Why Asset Allocation is Essential

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

We don’t purchase gasoline because it transports us places but rather it fuels the automobiles that do. We don’t purchase bandaids because of their healing capacity but for their ability to protect an area and allows the body to mend. We don’t put a roof on our house because it’s attractive and luxurious but for its ability to shield all that it covers.

Remember why many investors purchase fixed income. We don’t hold fixed income securities because they represent an opportunity to multiply our assets but rather because they protect the wealth we’ve accumulated.

We often hear, “rates are low, I’m not sure I should buy bonds right now”. Portfolios without individual bonds are like canoes without oars. Your ability to navigate your destiny is limited.

Whether rates are near zero or double digits, they do not influence the primary purpose of holding fixed income assets. For many investors, individual bonds represent a viable way to hold onto the wealth that likely has been amassed via different asset allocations and a lifetime of hard work. Each asset allocation serves its individual purpose to either build wealth or protect wealth. Eggs without a nest are much more vulnerable to predators and weather elements.

We dwell much on the protective qualities of individual bonds but the forces tempting and influencing investors with visions of quick fortune can cloud the discipline of balancing your assets. It’s like canceling your homeowners insurance. You don’t need it until you do. As a matter of fact, you’re fortunate if you never have to tap into it.

Do not let the media noise, low interest rates or any other outside variable influence your discipline and portfolio’s need to remain balanced and fully invested. Regardless of interest rate levels, the portion of your portfolio that is earmarked to preserve your wealth should remain invested in wealth protecting individual bonds.

To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.

Stocks are appropriate for investors who have a more aggressive investment objective, since they fluctuate in value and involve risks including the possible loss of capital. Dividends will fluctuate and are not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation.