Selecting Fixed Income

Many investors have told me they want to invest in bonds, but aren't sure how to do it, or which bonds might be best for them.

To a large extent, it depends on your goals, your risk tolerance, your timeline, and how active you want to be in managing your portfolio.

Let's start with what kind of bonds you should consider. Key questions here are: what's your primary goal, how long is your investing timeframe, and how much risk do you want to take?

If you expect to need the money within four years, or want to take the least amount of risk, your primary goal is likely to be capital preservation. Investments that can be appropriate include bank CDs or short-term bond funds.

If your investing timeline is longer, and you're willing to take more risk in order to potentially earn higher yields, you might consider longer-term Treasury bonds or investment-grade corporate or municipal bonds.

And if your primary goal is income, and you're willing to take the greatest amount of risk, think about emerging market bonds or long-term Treasuries.

Once you've decided what to invest in, the next step is how to do it.

A first step here is how much you have to invest in fixed income securities.

For example, we recommend at least $100,000 if you intend to invest in individual bonds, so you can buy enough bonds from different issuers to create an adequately diversified portfolio.

Many separately managed accounts have minimum investment levels of about $250,000

The other question is how actively you want to manage your portfolio. If you're an experienced fixed income investor and want to do it yourself, individual bonds are an option.

If you'd rather leave the management to a professional, consider mutual funds or a separately managed account.