Ask the Hammer: How to Invest the Fixed-income Portion of Your Portfolio

Robert Powell, CFP®

In an era of historically low interest rates, how might you invest the fixed-income portion of your portfolio?

That was the question posed by a reader in this episode of Ask the Hammer.

And the answer, according to Jeffrey Levine, CPA/PFS, the director of advanced planning at Buckingham Wealth Partners, is that there's no perfect right answer and no perfect wrong answer. Instead, it all depends on your philosophy about fixed income, says Levine.

For instance, if you need yield you might have to take on more risk by invest in fixed-income investments with longer maturities or bonds with lower ratings.

If, however, you're using the fixed-income portion of your portfolio as a safety net consider safe investments such as CDs or investment-grade bonds. In other cases, it might mean looking at fixed-income alternatives such as fixed annuities, fixed index annuities, single premium immediate annuities, and qualified longevity annuity contracts, says Levine.

"It all depends upon what your goals are, how comfortable you are with tying up money," he says. "Again, in an environment like this, the key thing to remember is there is no perfect solution. It's just a matter of choosing the one that is least bad for you."

Consider too as you evaluate how to invest the fixed income portion of your portfolio not just the nominal yield but the real yield of your investment. The real yield being the nominal yield minus the rate of inflation. So, for instance, If a CD yields 4% and inflation is running at 2%, the real yield is 2%.

Got questions? Get answers.


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Comments (2)
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James Smith
James Smith

Very informative, thanks.

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