Bonds are an important portfolio element for almost everybody, particularly for older investors looking to preserve capital. But John O’Connor, senior wealth advisor with the The O’Connor Group, told Financial Pipeline editor Romina Maurino that investors must realize that bonds are not risk-free – and that there is added risk during a time of rising interest rates.
RM: Is there a certain type of investor that a bond is more ideal investment for?
JOC: As people get older and their net worth is established for their retirement, the perception is that they can take on less risk to grow their portfolios. The older investor who has less need for growth, but more need for protection of their assets and their net worth, then bonds that are not risky apply there. Maybe GICs to government bonds, then again with some diversification to improve yields and to summit the corporate bonds that are available. But all markets pose risk. To reduce risk, you shorten up your term in bonds, deal with government-type bonds that have lower risk than the high-yield bonds that are more corporate and just keep in mind, the higher the interest rate you’re getting paid on a bond, it really has more underline risk. So the older investor that wants to protect his/her assets, fixed income provides that definite solution for them.