Will the market be ready when you are?

Nick Goetze discusses fixed income market conditions and offers insight for bond investors.

Recently, our commentaries have focused on the opportunities available in the Fixed Income markets, highlighting yields at levels rarely seen in the past two decades. However, that is only part of the story for those investors who are near or in retirement. Most of us are familiar with the typical financial lifecycle. For the majority of us, we start working after school and have little to set aside for saving in the early stages of our careers. Married life comes next, and maybe advancement in our careers, which comes with higher earnings. We then start a family, which takes up a large portion of available income. We do our best to put money away in retirement plans along the way as we grow our careers alongside the growing costs of our families and other expenses. Then suddenly one day, our children can support themselves, and we have a real opportunity to get serious about building net worth towards our goal of retirement in whatever form we dream of. This is of course an overly simple synopsis of a common cycle, but it generally holds true in some form or fashion for the majority.

Obviously, there are many factors that are out of our control along the way – with one of the biggest being what the financial markets will look like when we transition to living off our accumulated wealth. When we are 30 years old, we can take more risks in our portfolio with the knowledge that we have time to try again if we fail. When we have less time to start over our natural tendency is to take a more conservative approach when making investment decisions. But what if we retire at a time when interest rates are low and “safe” investments have 2% yields and we were planning on 4%? In those cases we still maintain a conservative approach and either plan to spend less or plan to spend down our principal faster. Thankfully, now is not one of those times. With interest rates in the bond market significantly higher than most of the past two decades, many investors can easily achieve their yield targets with high-quality fixed income portfolios.

Currently, we can achieve the traditional 4% target draw out of IRAs or regular accounts. In many cases we can lock in 5% taxable returns with investment-grade corporate bonds and over 4% with tax-exempt municipal bond returns, which is a very attractive opportunity those in higher tax brackets. At any stage of our investing timeline, growth is always important. However, if we can generate the income needed to live our lifestyle using an investment grade bond portfolio designed around our individual situation, it makes including riskier assets in our portfolio a lot less daunting in retirement. The current interest rate market has a lot to offer. There is no way to predict how long it will last. Locking in at levels that hit your goals can make planning for retirement much simpler.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.

Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value.

To learn more about the risks and rewards of investing in fixed income, access the Financial Industry Regulatory Authority’s website at finra.org/investors/learn-to-invest/types-investments/bonds and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) at emma.msrb.org.