At TLWM, we believe that both stocks and bonds play an important role within portfolios. In this post, we’re going to focus on the role that bonds play.

Incorporating bonds into a portfolio can potentially provide diversification and reduce risk. By taking the time to understand what’s important to you, your goals and objectives, we can try to determine whether bonds may be a good fit for you.

Three major factors we would want to consider are:

1. Risk- This includes identifying both your ability and willingness to take risk. Or another way to put it; how much risk you can reasonably afford to take, and how comfortable you are with risk.

If you are a more conservative investor, bonds may be able to help provide a smoother ride during periods of stock market volatility. This is because when stocks go down, bonds normally perform well compared to stocks and seek to lessen the negative impact on your portfolio, hopefully allowing you to sleep better!

2. Time Horizon – If you have a shorter time horizon, for example; you are close to retirement or already in retirement, you probably don’t want to take major steps backwards within your portfolio–so by adding bonds we aim to reduce risk, and dampen volatility.

3. Income Needs- Many of our clients plan on taking income from their accounts at some point. Taking distributions when the market is going down may have an even greater impact on your portfolio because the value drops due to both withdrawals and stock market volatility.  In this scenario, adding bonds can seek to help stabilize the portfolio, and minimize the risks of a significant drawdown.

When working with TLWM we use a financial planning process to get an in-depth understanding of your financial situation. This allows us to make financial planning recommendations and to determine an appropriate overall asset allocation, which may or may not include bonds. At the end of the day, we build portfolios with a full understanding of your situation while trying to maximize the chances of you reaching your financial goals.

If you have any questions on this or know anyone who could benefit from our approach, please feel free to reach out!

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*Investment advice offered through TLWM, LLC., a registered investment advisor.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged index. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

*Credit risk can be a factor in situations where an investment’s performance relies on a borrower’s repayment of borrowed funds. With credit risk, an investor can experience a loss or unfavorable performance if a borrower does not repay the borrowed funds as expected or required. Investment holdings that involve forms of indebtedness (i.e. borrowed funds) are subject to credit risk.

* Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause your account value to likewise decrease, and vice versa. How specific fixed income securities may react to changes in interest rates will depend on the specific characteristics of each security. Fixed-income securities are also subject to credit risk, prepayment risk, valuation risk, and liquidity risk. Credit risk is the chance that a bond issuer will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of a bond to decline.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* This document is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Texas Legacy Wealth Management and its representatives are properly licensed or exempt from licensure.

* No strategy ensures a profit or protects against a loss.