Not all bonds are created equal: market risks and other considerations
In today's environment of low interest rates, many investors are chasing income by moving into lower-quality high-yield bonds, but are they ignoring the downside risks?
While an overweight to high-yield credit may be an efficient way to boost a portfolio’s yield, investors need to be mindful of the additional risks they are taking on and how those risks will interact with other parts of their investment portfolio.
For example, for retirees seeking a stable income-generating portfolio, the addition of less-liquid bonds that have an increased risk of capital volatility might not be the right investment option, despite the income they produce.
Here, we explore the different types of fixed income securities and their associated risks.