It’s generally a good idea to own a mix of stocks as part of your overall investment portfolio. But the importance of diversification applies to bonds, too — so, how should you go about achieving it?
You could invest in mutual funds that own dozens of individual bonds. You can find bond funds that focus primarily on government, corporate or municipal bonds, which all have different risks and rewards.
But you can also diversify your bond holdings by owning a group of individual bonds with different maturities: short-, intermediate-, and long-term. By building this type of bond ladder, you can take advantage of changing interest-rate environments. When interest rates are rising, you can reinvest your maturing, shorter-term bonds at the new rates. And when market rates are low, you’ll still have your longer-term bonds working for you, as these longterm bonds generally pay higher rates.
If they’re appropriate for your situation, bond funds and bond ladders can help diversify your portfolio. And while diversification — in either stocks or bonds — can’t always guarantee success or avoid losses, it remains a core principle of successful investing
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, Member SIPC