Rethinking Your Bond Portfolio

interest_ratesHere’s the dilemma posed by today’s low interest rates:

Ten years ago, you needed a $600,000 portfolio to generate $2,000 per month in income from U.S. Treasury bonds.

Today, it takes almost $1,500,000 to generate that same income.

So what’s the solution for investors desperate for higher income?

“Go where the income is now, not where it used to be,” says one long-time bond manager.

If Treasury bonds and other core bond holdings (like those making up most bond indexes) pay almost nothing, then it’s time to widen the net and look elsewhere for good income opportunities.

We firmly believe there are many excellent income solutions available today to meet the needs of almost any bond investor.

But (and here’s the kicker), doing what you did ten or twenty years ago is not the answer.

So if you are stuck in the same investing rut, it’s time to climb out and restructure your bond portfolio to meet today’s realities.

What does that mean in concrete terms?

  • Move away from the “safe” alternatives that can lose you money if rates rise.  “Due to the possible depreciation in bond prices once rates rise, an allocation to traditional fixed-income strategies may offer high risk with lower or no return,” warns Kathleen Gaffney, CFA, Vice President at Eaton Vance, one of the financial industry’s most experienced bond fund veterans.


  • Rethink risk, specifically the roles of interest rate and credit risk.  Many seemingly “safe” U.S. Treasury and other bonds have high interest rate risk, meaning a high likelihood of losing money when rates rise. It’s time to think outside the box. What you think is safe may be the riskiest; and what you think is risky may be your safest and best bet in this uncertain world.


  • Create a broadly diversified multisector bond portfolio. There are many types of bonds that offer attractive risk and reward profiles, but you have to step away from the tread-worn Treasury and U.S. Government sectors to find them.  The goal is to give investors some upside potential in the face of rising rates.  “Finding bonds that can appreciate in price during rising interest-rate environments is what a multisector strategy generally seeks to accomplish,” advises Gaffney.


The Takeaway:  One of the most important ways we are helping clients today is by restructuring their bond portfolios to obtain the income needed to preserve their lifestyles, maintain diversification and take advantage of market opportunities.


About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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