The management of bond portfolios is easier said than done. It would help if you had financial education on the above so that you can reap the highest yields from them with time. For many investors, the task of investing in bonds does sound simple. They merely buy the bonds with the highest profits. However, this approach is not the right one. It might work for you when you are comparison-shopping for certificates of deposit at a local bank. However, it is not the right strategy for the management of the bond portfolio.
Kavan Choksi– An insight into the key strategies for bond portfolio management
Kavan Choksi is an esteemed expert in finance and business with proven track records in financial wealth management. According to him, there are four critical strategies for the management of your bond portfolio, and each of them has its own pros and cons. Before you choose them for your personalized needs, it is prudent to know what they mean and how you can sync them in with your financial goals.
Four strategies for the management of bond portfolios
There are four strategies to help you with the management of your bond portfolio, and they are the passive or the buy and hold technique, the quasi-passive or the index matching technique or the immunization or the quasi-active technique, and the dedicated or the functioning technique.
Understanding these strategies clearly
The passive investment approach is suitable for those investors who expect a predictable return from their bonds. Active investing is ideal for those investors who wish to make future bets, whereas immunization and indexation fall somewhere in the middle, meaning they will give you some amount of predictability but not as much as the buy and hold or the passive strategy
Changes in the rates of interest- keep this in mind all the time
According to him, when you own a bond portfolio, you can generate consistent returns over a period of time. However, bonds respond to the changes in the interest rates, and so their value fluctuates quite frequently in the market. If you are new to purchasing bonds, you must keep the above trends in mind before you manage them effectively.
He recommends you embrace a more active technique where you can manage the bonds you hold to remain ahead of the fluctuations in the rates of interest. While you are managing your portfolio, keep the immunization approach in mind. It refers to the mitigation of the impact of the changes in the rates of interest on the value of the portfolio or the cash flow that you will enjoy in the future. This can be achieved when you can successfully match the duration of the bonds you hold.
According to business expert Kavan Choksi, several strategies for the management of bonds exist, and you can choose any one of them. You must identify which of these many strategies appeals to you. While doing so, remember what your financial goals are and your tolerance for risks. If you are a beginner in bond portfolio management, it is prudent to consult an expert in the matter to guide you. In this way, you can make better-informed decisions successfully.