Investment Implications for Bonds: Balance and Selectivity

Given current investment market trends and underlying uncertainty, consider the following actions when investing in bonds (aka fixed income).

Amid inflation, rethink cash. Investors have $4.5 trillion in money market funds. With negligible yield amid elevated inflation, holding these assets may have a negative impact on purchasing power. High-quality short-term bond funds have the potential to provide more income. Look for a strong track record of capital preservation.

Stay strong at the core. Assets are priced at expensive levels. Meanwhile, growth is expected to slow, and risks are expected to persist. Diversification remains important. Funds that seek to avoid interest rate risk and protect from inflation may be especially noteworthy.

Be selective about income. As global markets move toward a new normal, some bonds and sectors will fare better than others. Research-driven management has the potential to pursue better opportunities.

Consider the after-tax benefits of municipal bonds. With strong fundamentals, muni bonds may remain a good value for investors in higher tax brackets.

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