How to Construct Your Fixed-Income Portfolio

The last 10% of the fixed-income portfolio can be sort of a catchall that depends more on individual tolerance than anything else. I will usually allocate the final 10% to one of the closed-end funds that owns equities and sells covered calls. I first wrote about these a year and half ago and have maintained exposure even longer. While it is crucial to realize these funds own equities, they behave like bond funds the vast majority of the time. I believe they can be less interest-rate sensitive at times when rates go up a lot.

You will notice that there was no high-yield or emerging-market exposure here. For now, interest rate spreads do not favor these parts of the market, but it makes sense to expect that both segments will become attractive at some point and will merit some exposure in the future.

To reiterate -- this is not the best way, it is one way. The mix generally does what I want it to do, but there are many ways to build a fixed-income portfolio. I hope that this will help some people start to think about it if they have not done so already.

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