Why bonds belong in investment portfolios
Did you know that the bond market is about twice the size of the stock market?
Stocks get all the attention because they’re pretty easy to understand. A stock is simply an ownership interest in a business. You can find the price of a stock in a couple of clicks on your smartphone.
Bonds aren’t quite so simple. They are debt contracts issued by corporate, government, and municipal entities. The issuers promise to repay the debt at a future date and make regular interest payments along the way. A bond is similar to a mortgage – the borrower gets money to purchase a house while the bank earns interest as compensation for the risk of lending money.
Bonds are an essential part of an investor’s portfolio because they have the potential to deliver a stable, predictable cash flow an investor can count on.
Many think of bonds as a regular paycheck – the interest payments come in the expected amount, on the scheduled date. Stocks also have the potential to grow in value over the long run, but the ride may not be quite as smooth. Stocks are more akin to a bonus at work – you never know if and when you’ll get the check.
Norris, Perné & French currently manages more than $500 million in bonds on behalf of our clients. We have relationships with bond dealers that stretch back for decades. These relationships give us access to high-quality bonds that are typically unavailable to individual investors.
That enables us to match specific bonds with the specific needs of each client (unlike a broker who shepherds clients into a bond mutual fund). Using our research and connections, we build customized, diversified bond portfolios that meet each individual’s cash-flow requirements.
Bonds may not be as exciting as stocks, but their benefits are impressive – they produce a “paycheck” you can use while bringing balance to your investment portfolio and adding protection against market volatility.