For years, bond yields have been at or near historically low levels. And for years, many observers have expected yields to rise sharply. Yields have bounced up a bit in 2013, but there’s no way of knowing which direction they’ll go from here.
In such an environment, handling a client’s fixed income portfolio can be tricky. One approach is to put some of those dollars into a rolling bond ladder. This offers “temporal diversification,” as Robert Tipp, chief investment strategist for Prudential Fixed Income in Newark, N.J., puts it. “Just as holding different asset classes can decrease investors’ risks,” he says, “having bonds maturing in different years can reduce the chance of bad timing.” A client with a bond maturing in 2013 might not be able to find appealing yields while that client could be pleased to have redemption proceeds to reinvest in, say, 2018 or 2023.
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