Municipal Market Commentary – January 27 2015
Today’s Bond Market. And Tomorrow.
For some investors, the choice of bonds over stocks, in today’s environment of interest rates that appear to be low may seem curious. But many bond investors and financial planners believe that there are valid reasons to buy bonds in all interest rate environments. And that the decision to buy bonds, or any other investment, is not a decision that should be made by attempting to chase a rising market but rather a decision based on individual circumstances.
Every investment buying decision is really several separate decisions. Let’s start with four general factors that should be settled first.
1) The first part of the decision making process is, or at least should be, based on the availability of investment capital. Is money available to invest? And, how much?
2) Next, what is the investment time horizon – 1 year, 5 years, 30 years ?
3) After that, successful investors must determine what their goals are for each investment. What are they trying to accomplish with this investment? For example, is the primary need income, tax-free or taxable, or growth or a combination of both?
4) How does any investment fit into an overall portfolio? Diversification is an important element of portfolio planning. Successful investors keep an eye on the relative weight of their investments by asset class and by individual securities within each asset class.
So why bonds now? Let’s look at the three basic reasons that bonds are a smart investment, for some, in today’s interest rate and stock market environment.
The first reason, for most investors is income or yield. For investors looking to generate a sustainable cash flow to offset living expenses, fixed income investments are often logical choices. But yield and potential income from high quality fixed income investments can also be a predictor of total return performance over an extended investment horizon. Any investment that produces income is naturally less dependent on capital gains for a positive total return calculation.
Next, the potential for predictable liquidity from your bond investments can make a fixed income investment a smart decision in many portfolios. Most bonds have a stated maturity date and a stated optional call date. If the issuer has not defaulted principal is returned to the investor on one of these dates. If you know or anticipate the need for future cash needs, an investment in high quality fixed income investments, with maturities matched with those cash flows can be an effective way to stay invested while preparing to meet future capital needs.
And finally, because the future is uncertain, bond investors look at diversification. While we all may look into our own personal crystal balls to predict the future, placing too large a bet on any single sector of the economy, because it looks good today, can add considerably to the risk of diminished results in the future. (Please see our Traders Analysis, below, examining relative volatility between stocks and bonds.)
As we see it the decision is really not about stocks or bonds but rather how each investment fits into an overall investment plan. This plan should be designed to meet your specific needs and objectives. We suggest that you periodically review your portfolio to determine if your investments truly match your objectives. At Hennion & Walsh we offer thorough, professional portfolio evaluation. If you are interested in learning more about this free service, contact your Hennion & Walsh Financial Advisor today.
Investing in bonds involves risk including the possible loss of principal. Income may be subject to state, local or federal alternative minimum tax. When interest rates rise, prices will fall, when interest rates fall prices will rise.
Our Trader’s Analysis charts the Dow Jones Industrial Average Volatility Index and the Bond Buyer 20-Bond Index.
Please Note: Past Performance is not an indication of future results.
Why Hennion & Walsh
We are specialists in tax-free municipal bonds.
Tax-free municipal bonds are Hennion & Walsh’s heritage – it’s who we are. When we founded Hennion & Walsh over 24 years ago, we started out as specialists in tax-free municipal bonds. We built our reputation by selling high quality municipal bonds to individual investors looking for potentially safe, predictable income that’s tax-free. Although we are a full-service brokerage firm today, including portfolio management services, our clients still enjoy the value of our expertise finding municipal bonds for their investment needs. We also still deliver the same one-onone personalized service we’ve provided since our founding in 1990.
Unlike some competitors, we offer individual investors direct access to municipal bonds in the primary and secondary markets. Bonds are a dynamic investment. While some of our clients are looking to buy and hold, others are interested in frequent trading opportunities. We provide the investment opportunities that each client is looking for with a full service municipal bond trading desk, current market information, and investing opinions designed to enable clients to make the right decisions.
Because of our active municipal bond trading desk we are able to identify and purchase blocks of attractive municipal bonds when they become available in the primary and secondary markets. In addition, Hennion & Walsh aims to offer investors the highest standards of professional conduct for their accounts.
Personalized service isn’t just a slogan at Hennion & Walsh. It’s how we do business.
It’s no wonder that many people turn to professionals for help, guidance, and advice when it comes to their investments. The question is to whom they should give this responsibility.
At Hennion & Walsh, we believe that the management of wealth should be taken as personally as its accumulation. We recognize the commitment our clients have made to building and maintaining their investments. Knowing this, how could we not manage and protect those investments as carefully – and as personally – as we can?
More than 15,000 clients call upon us for our advice and expertise. We deliver one-on-one attention that enables us to truly understand our clients’ needs and work in close partnership with them, regardless of account size. We do not have a call center or voicemail – we personally answer each call our clients make. We have built our firm’s reputation on developing strong, mutually beneficial relationships designed to last a lifetime.