Business News & TipsALAN S. MOORE / L’Observateur / April 7, 1999In general, investors who want to maximize the growth potential of their assets don’t think about adding bonds to their portfolios. However, intimes of market volatility, many of these same investors seek a combination offering a higher degree of stability and performance in their investments. Such a combination can be achieved with the purchase ofindividual bonds.
Published 12:00 am Wednesday, April 7, 1999
Bonds have traditionally been considered income-producing investments.
You buy a bond, hold it to maturity and receive regular interest payments every six months or year. Then you get the principal back when the bondmatures.
For the most part, bonds appeal to investors who are looking for steady income and don’t want to risk losing their principal investment. But bondshave a place in virtually every investor’s portfolio. A portfolio of bothstocks, to help combat the erosive effects of inflation, and bonds, to provide income and offset any stock losses with bond interest, can work for many investors. The key, however, is to determine what percentage andwhat type of bonds to own based on your personal financial needs, investment objectives and tolerance for risk.
Investors in their 20s have more time to ride out the market’s ups and downs and can generally afford to allocate a large portion of their assets to equities. Some may even allocate up to 100 percent to equities ashistorically stocks have outperformed income-oriented investments like bonds over the long term, although with greater volatility. As they age,however, many investors adjust the allocation in their portfolios according to their tolerance for risk and reliance on investment income – gradually adding bonds – to enhance the portfolio’s yield potential.
Of course, finding and maintaining the right investment mix, one that balances both risk and reward, is a complex process further complicated by the array of choices-bonds are issued with varying maturity dates by corporations, the U.S. Treasury, municipalities, and federal, state andlocal government agencies. Therefore, it may be wise to seek theassistance of an experienced financial advisor before you invest.
(Alan S. Moore is a financial advisor at Leg Mason Wood Walker, Inc., asecurities brokerage and financial services firm and member of the New York Stock Exchange, Inc. and SIPC.)
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