New Charles Schwab Report Addresses Investor Concerns About Bond Market Investing

SAN FRANCISCO--()--Investors who are uncertain about which way to turn in today’s bond markets can learn more about their options for fixed income investing in a new paper released today by Charles Schwab, a leading provider of financial services. The paper looks at several bond investing themes investors should be mindful of at a time when many believe their only choices are to lower their expectations or take on more risk.

“The current environment of low interest rates and market volatility can be disconcerting for investors if they don’t fully understand how to navigate through it,” said Kathy Jones, vice president and fixed income strategist for the Schwab Center for Financial Research and author of the paper. “Bonds can serve a critical function in investors’ portfolios, so it’s important to make deliberate decisions and not react in the moment.”

Reading the Signs in the Current Bond Market provides perspective on four topics that are top-of-mind for many fixed income investors, including:

  • Low interest rates – Even in a long-lasting low interest rate environment, bonds can help preserve capital and provide diversification. That said, investors holding long-term bonds that have appreciated in value might consider realizing some gains on those holdings to reduce duration risk. Jones says that bond ladders are another option designed to help create a predictable income stream and reduce interest rate risk.
  • Weighing the cost of cash – Sitting on the sidelines in cash or cash investments in an attempt to time the market comes with its own risks, such as forgoing income and losing the ability to compound returns. Jones and the team of fixed income experts at Schwab believe staying invested is more important than timing investments.
  • The role of muni bonds – Even though the municipal bond market will be challenged by a weak economic recovery and rising public service costs for at least a decade to come, munis remain relatively attractive overall in Schwab’s view. According to Jones and her team, when chosen carefully, munis can have yields that are greater than Treasuries, may come with tax advantages and can be a relatively stable income stream.
  • High yield comes with added risk – With US Treasury yields near 40-year lows, investors seeking income can be tempted to search for yield in riskier sectors of the bond market. Jones advises most investors to limit the amount of aggressive income investments to no more than 20% of an overall fixed income portfolio.

“Whether held as individual securities or as part of a mutual fund or exchange-traded fund, bonds can help stabilize an investor’s portfolio during market volatility,” says Peter Crawford, senior vice president of asset management client solutions at Charles Schwab, who notes that tools such as the Income Mutual Fund Select List™ and Schwab ETF Select List™ help investors identify low cost, income-producing funds. “Investors want help in making sense of their fixed income investments throughout various market cycles, and the bond experts and other resources we have at Schwab are here to help them do just that.”

At Schwab, investors have access to over 36,000 new issue and secondary bond offerings from more than 200 dealers1 through BondSource®, Schwab’s online bond platform, as well as to hundreds of fixed income mutual funds and exchange-traded funds offered by Schwab and other third parties. The platform connects investors to multiple major bond trading platforms, and provides access to professional research and user-friendly bond search and filter functionality. Bond investors are automatically presented with the lowest prices available through Schwab, although prices can be compared easily as well. In addition, all clients have access to Schwab’s tenured, dedicated team of 100 fixed income specialists1 who can provide further guidance. As of June 30, 2012, BondSource had over $170 billion in client bond assets.

Investors interested in downloading the paper should go to www.aboutschwab.com/press/research.

About Charles Schwab

The Charles Schwab Corporation (NYSE: SCHW) is a leading provider of financial services, with more than 300 offices and 8.7 million client brokerage accounts, 1.5 million corporate retirement plan participants, 829,000 banking accounts, and $1.82 trillion in client assets. The company was ranked “Highest in Investor Satisfaction with Self-Directed Services” in the 2012 U.S. Self-Directed Investor Satisfaction StudySM from J.D. Power and Associates. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC, www.sipc.org), and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides banking and mortgage services and products. More information is available at www.schwab.com and www.aboutschwab.com. (0812-5348)

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© 2012 Charles Schwab & Co., Inc. Member SIPC

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors.

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.

Charles Schwab & Co., Inc., member SIPC, receives remuneration from fund companies participating in the Mutual Fund OneSource™ service for record keeping and shareholder services and other administrative services. Schwab also may receive remuneration from transaction fee fund companies for certain administrative services.

Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security’s tax-exempt status (federal and in-state) is obtained from third-parties and Schwab does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

“High-Yield” (sub-investment grade or “junk) Bonds are lower rated securities and are subject to greater credit risk, default risk, and liquidity risk than investment grade bonds.

1 As of June 30, 2012

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=50377667&lang=en

Contacts

Charles Schwab
Alyson Nikulicz, 212-403-9240
alyson.nikulicz@schwab.com

Kathy Jones, vice president and fixed income strategist for the Schwab Center for Financial Research (Photo: Business Wire)

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Contacts

Charles Schwab
Alyson Nikulicz, 212-403-9240
alyson.nikulicz@schwab.com