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3 Ways to Diversify Your Bond Mix

multi-colored grape clusters

One of the most important investment decisions you can make is to choose the mix of stocks and bonds that’s right for you. But diversification goes further than just this mix. Take bonds, for instance: You can think of bond diversification in three main categories: bond type, bond maturity and bond sector.

  1. Bond Type
    There are three primary categories of individual bonds: municipal, corporate and government. Each bond type has unique characteristics. Your overall risk tolerance, financial goals and tax considerations should determine the types of bonds you should consider adding to your portfolio.
  2. Bond Maturity
    No one can accurately predict interest rate movements. Instead of basing investment decisions on predictions, we recommend a strategy called “laddering” – staggering the maturity dates (short-, intermediate- and long-term) of your fixed-income investments. A laddered bond portfolio can also help you take advantage of potential higher interest rates by allowing you to reinvest matured bonds at the new higher interest rate. Keep in mind that you must evaluate whether a bond ladder and the securities held within it are consistent with your investment objectives, risk tolerance and financial circumstances.
    Bond Ladder Recommendations
    Maturity Type
    Recommended Range
    Short-term (up to 5 years)
    30% - 40%
    Intermediate-term (6 to 15 years)
    40% - 50%
    Long-term (16+ years)
    15% - 25%

  3. Bond Sector
    We’ve all heard the saying, “Don’t put all your eggs in one basket.” A similar concept holds for bonds as well. By investing in different sectors, your portfolio is exposed to different parts of the economy, helping to spread the risk.

What about bond funds?

If you find it difficult to properly diversify with individual bonds or prefer the professional management of a mutual fund, bond funds* may be right for you. Bond funds are generally diversified by maturity and sector, and can be an attractive alternative for many investors.

We can help

If you’re looking to improve your bond mix, contact your financial advisor. Together, you can determine which types and amounts of bonds are appropriate for you.

Important information:

Diversification does not ensure a profit or protect against loss.

*Mutual fund investing involves risk. Your principal and investment return in a mutual fund will fluctuate in value. Your investment, when redeemed, may be worth more or less than the original investment.

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