Fixed Income Strategies

FIXED INCOME STRATEGIES

Next Step Wealth favors lower-risk bond strategies so investors can temper their total portfolio volatility or take more risk in equities, where expected returns are greater.

If risk reduction is the primary goal, the evidence is strong that short-term is far more effective than long-term fixed income. Perhaps less apparent to investors, historical data shows there has not been a reliable return premium for extending maturities into longer bonds.

One reason this result may be surprising to many is that recent history does not conform to this long-term result. The data from the period 1982 through 1993 shows a tremendous premium for maturity extensions. In this period, long-term bond returns were more than double the returns of short-term bonds and almost kept pace with the return of the stock market. Yet a longer perspective would indicate this outcome was more the exception than the norm.