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Portfolio Strategy is a Discipline

 

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

An industry pretense portrays symbolic images devoted to bond versus stock folks.

Stock disciples advocate purchasing stocks when the market is bullish. You must get in while stocks surge and participate in the riches accumulated during a bull run. If the market drops, it is the perfect time to lower your average cost of holding particular companies. Buy when the market is hot. Buy when it dips. There is never a bad time to participate.

Bond persons tend to be labeled as pessimistic about the economy or even the world. They nearly always side conservatively with exceptional consideration dedicated to risk assessment and they diversify gambles using deliberate strategies.

The imagery can and should coexist in the actual world but the reality and sometimes problem is that human behavior tends to get in the way of intellectual rule.  We often can’t help our competitive nature, lure to greed and surrender to fear.

Portfolio strategy is a discipline. Divergence from this discipline is almost always because of fear or greed. Since our childhood days, we resist discipline but as we mature, we learn to appreciate that discipline simply makes us better and I will suggest that this truism applies to our investment portfolios as well.

There are assets that grow our wealth. The trade off is that growth assets tend to include higher risks. We almost always accept some level of risk in order to reap the benefit of growing our wealth. It is extremely important to participate in growth assets especially when our earning capabilities are robust and taking calculated risks are well-judged.

At the same time, individual bonds provide a shield for our wealth or guard against losing this wealth.  You will likely never get wealthy investing in bonds but you likely never take huge drops in your wealth either.  It is far easier to protect  your wealth than to create it. As you near retirement or you have reached a point of comfortable wealth accumulation, individual bonds play an important part in helping you to keep this wealth.

Maintain appropriate allocations to growth or total return assets as well as appropriate allocations to individual bonds or wealth preservation assets. Portfolio strategy is a discipline that creates a healthier financial existence.


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.