A Veteran Bond Investor is an active market participant with intermediate skills. Veterans have actively maintained their own bond portfolio for a few years. Veterans have a conservative investing approach for the money they’ve allocated to bonds, but carefully research a bond investment instead of just taking its credit rating at face value. A Veteran Bond Investor consults his or her asset allocation plans and reassesses it periodically.
Bond veterans fully appreciate the importance of the Fed and the fluctuation of current and expected interest rates. Not only do they understand basic economic trends that may influence bond prices, they take into account the broader macroeconomic environment and its impact on the bond market as a whole. As a veteran, they have a concrete grasp of the varied types of bonds available within each asset class, such as Revenue and GO bonds for munis or debentures and asset-backed bonds for corporates.
A Veteran Bond Investor may hold short-term investments and even longer-term holdings until maturity, but might trade out of a bond position to capture a gain in yield due to market fluctuations. However, Veterans are aware that it’s also possible to incur a capital loss if doing so. Veterans tend to have significantly more capital to invest in bonds than the average rookie and have the knowledge to use it effectively and within their risk parameters. Veterans know not to turn a blind eye to corporate actions, but they don’t have as deep of an understanding of them as they might like.
To be a Veteran Bond Investor, here are the concepts you should master:
- The Fed’s role and how its actions may impact your portfolio
- The different ways yields are quoted, gaining an intuitive grasp of them
- The different types of risk associated with fixed income investing: interest-rate risk, credit risk, reinvestment risk, inflation risk, market risk, selection risk, timing risk and transaction costs.
- How liquidity varies across different bond issues and its subsequent impact on bond prices
- How a bond’s duration estimates the effects of interest rate changes
- Call and put provisions
- How to create a detailed asset allocation plan for your portfolio and across different types of bonds
- How to build various bond ladders
- The implications taxes have on your fixed income investments
Veteran Bond Investors can improve their skills by:
- Continuing to use TradeKing’s Bond Finder for investment opportunities
- Finding investment opportunities with TradeKing’s Fixed Income Center
- Reviewing bond strategies geared to the veteran skill level
- Anticipating how Fed actions may impact your bond holdings
- Placing coupon payments in a savings account for future annual bond investments
- Anticipating and planning for all possible outcomes for your investments, not just the positive scenarios
- Engaging members of the Trader Network to work through investing ideas
- Inquiring members of the Trader Network to explain their investing analysis
- Challenging members of the Trader Network with an alternative point of view
- Learning about more complex laddering
- Attending or watching TradeKing’s free educational webinars, geared to the veteran skill level
Veteran Bond Investors should steer clear of the following:
- Resist the urge to invest in junk bonds with promises of high yields
- Do not invest in any bond if you do not completely understand its features or tax implications