Winthrop Financial Advises Clients On Fixed Income Investment Strategies

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Given the possibility of rising interest rates in the future and concerns over credit quality, Winthrop Financial offers advice to clients on different investment strategies.

According to a May 29 Reuters article, there is reason to believe that interest rates could spike when the Federal Reserve slows down on the purchase of bonds. Investment advisors, Winthrop Financial, have some advice for investors in case of any shifts in interest rates or bond stability.

Over the past few years with interest rates declining toward record lows, many investors may have taken on additional risks in their portfolios to try to generate higher yields by investing in lower-rated or extended maturity securities, or other asset classes. Risk aversion sparked by recent equity market volatility and an aging population seeking income during retirement has caused more than $1 trillion to flow into bond funds over the last five years.

With the recent news about the Federal Reserve, now is a good time for investors to revisit what they own – and why. Does the investor own individual bonds, bond funds, exchange-traded funds or other managed products? Do they own them to generate income, to balance the risk of stocks or for safety and preservation of capital? While traditionally serving as a safe part of a portfolio, bonds are generally subject to price declines in a rising interest rate environment.

Winthrop Financial advises that investors also reaffirm why they own specific investments. Investors typically include fixed income in their portfolios for a variety of reasons, including predictable income, diversification from equities, preservation of capital, and total return opportunities. When working with a financial advisor, it is important to first uncover why the investor owns bonds and what those bonds are needed for.

Many investors own individual bonds to receive steady, consistent income. Since these income-focused investors typically hold bonds to maturity when the par value is returned, subject to the creditworthiness of the issuer and/or a call at the issuer’s option, they may not be as concerned about changes in the value of their bonds due to movements in interest rates. If investors do not need the income, and are instead using bonds to achieve an attractive total return, they may be more sensitive to losses and it may be advisable to take action. It is so important to understand the role fixed income investments play in a portfolio.

While drastic changes may not be necessary in an investor’s portfolio, it is important for them to work closely with an advisor, evaluate the circumstances and take action when appropriate. All other things being equal, higher rated bonds generally feature lower yields than bonds with lower ratings. It is important to match risk and return with needs, goals, and overall risk tolerance.

Winthrop Financial can help investors with a fixed income strategy to help ensure portfolios don’t undergo undue costly losses. There are many things investors can do to protect themselves and can discuss these steps with a financial advisor:

1.    A simple strategy to take is to shorten the maturity of bond holdings. This reduces sensitivity to interest rate movements and lessens potential price declines if rates rise.

2.    Manage credit risk by managing the credit quality of the bonds in portfolios. A minimum of “A” rating for municipal bonds and investment grade or higher for corporate bonds and preferred securities is recommended.

3.    Counter to this strategy is to buy bonds with higher coupons at a premium. These bonds offer the potential to offset principal risk in a rising interest rate environment while capturing higher yields. The bonds tend to be less volatile in a rising rate environment, but do require a greater initial investment.

4.    By diversifying and buying bonds along the yield curve, investors help protect their principal and generate additional return in a rising interest rate environment by having shorter and longer maturities and getting a higher average return by investing unneeded cash at the end of the yield curve.

5.    Investing globally may best be achieved through a professional or mutual funds, though is not appropriate for all investors. Seeking sovereign and corporate debt in both developed and emerging countries can mitigate currency fluctuations and political and credit risk is spread among various countries.

6.    Reduce fixed income allocation in favor of other assets, reallocating a portion of fixed income holdings to other income generating securities, such as dividend paying stocks.

Winthrop Financial can help investors understand all their options when rates and investments shift. To get advice and to develop the best course of action for their portfolios, investors can call Winthrop Financial to speak to an advisor, (716)948-2090.

To read the full Reuters article, please go to:

About the company:
Winthrop Financial combines 93 years of experience as financial guides to bring the knowledge and proven service to help people feel comfortable with not only where they are, and where personal financial guidance can lead them. They focus on helping individuals with their life transitions, from young professionals accumulating assets, to affluent individuals and families, to those close to or in their retirement years. By providing financial planning, asset management, and wealth management services, Winthrop Financial helps clients prepare for their retirement and or even college. For more information, please visit their website at

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Deborah Stauring

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