At their most basic level, bonds are a way for one entity to raise money by borrowing from another. For example, governments and corporations issue bonds to raise money from investors when they need new sources of capital to fund their activities.
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In Topic 1 of this series, we covered the basic concept of bonds along with the different types available. Once your clients have grasped these key concepts, they’ll want to know how they make money from bonds.
5 MIN.

Most investors have a good understanding of shares and how they work. A great way to frame a conversation about bonds is to leverage these familiar concepts to make bond investing easy to understand.
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Since the evolution of the modern bond market, investors have used bonds as a way of diversifying their portfolio, generating income and preserving their capital. Some even use the bond market as a capital appreciation tool.
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Many investors know that bonds are a relatively stable investment, while others could tell you that bonds are a form of debt used by companies and governments. However, due to the ins and outs of bond pricing and performance, many investors may find a gap in their knowledge.
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When it comes to bonds, the role of interest rates is often less well understood. For investors who want to build a deeper understanding of the fixed income market, the relationship between bonds and rates is critical knowledge.
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Duration is a word that often appears in discussions of the fixed income market. Indeed, it’s an important part of understanding the risk of a bond investment. Making sure clients have a thorough understanding of duration is essential when advising them about bonds.
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The term "yield curve" is frequently used by investors and commentators when discussing the outlook for bonds, markets and the economy more broadly. But despite its common use, it is a concept that many investors don’t understand well.
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The basic concept of inflation reflects the changing prices of goods and services, and has potential impact on investments, particularly bonds. However, the bond market is large and diverse, and it provides many opportunities for investors in all sorts of inflationary environments.
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If there is one thing that makes bond holders nervous it’s when interest rates rise. Worried about declining bond prices, investors may think their best option is to sell. But rising rates aren’t always bad for bond investors. Indeed, there are several ways to navigate and benefit from rising rates.
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In recent decades, bonds have evolved into a $100 trillion global market. With such scale, there is a wide range of bonds for investors to choose from and many ways to gain access. Understand the different options available for bonds.
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There are many different investment strategies bond investors can use depending on the role bonds will play in their investment portfolios. Investors first need to choose an active or a passive investment approach, and then they can choose the most appropriate underlying strategy.
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Like any investment decision, choosing to invest in a bond or bond fund requires careful consideration. Focusing on a handful of key factors – namely, return potential, risk and fees – can make the task easier.
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Bonds are broadly considered to be low-risk investments when compared to asset classes like equities and property. Despite bonds’ generally less volatile performance, however, there are still several risks that investors need to understand when investing in the bond market.
6 MIN.

Like any investment, bonds come with risk – including (but not limited to) interest rate risk and reinvestment risk. When investing in bonds, some investors like to use an investment strategy known as ‘laddering’ to help reduce their exposure to these risks.
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Asset allocation is fundamental to achieving investment goals. In fact, asset allocation is likely to have a bigger impact on the performance of a portfolio than the selection of individual investments.
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Portfolio construction is key to achieving investment goals. Understanding the general principles of how the key asset classes work together can provide a foundation for a well-diversified portfolio.
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Even highly diversified portfolios may not adequately cushion market volatility stemming from underlying risk factors. Understanding the risk factors many asset classes share can help to create more effective portfolio risk management.
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In today’s market, investors face a complex environment that requires a more sophisticated approach to asset allocation. One of the keys to effective asset allocation is a long-term, strategic approach that can adapt to investors’ changing needs and investment objectives over time.
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Allocating across a diversified range of asset classes can help manage overall portfolio risk. From time to time, however, extreme market shocks may trigger unexpectedly widespread declines in asset values devastating a portfolio strategy. Understanding tail risk can help investors prepare for the unpredictable.
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Financial market performance is driven by a long list of complex, interrelated secular and cyclical factors. Wide-ranging forces directly and indirectly influence the decisions of businesses and consumers, pushing market prices up and down.
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Understanding how fiscal and monetary policies may affect the performance of different markets can help investors make more informed investment decisions.
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Among the many factors that can affect market performance, political events are perhaps the most difficult to predict, but they frequently have significant implications for investment decisions.
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Macroeconomic trends play a key role in financial markets. Understanding how financial markets are likely to respond to changes in GDP and how various asset classes and industry sectors perform during different phases of the business cycle is critical knowledge for investors wanting to understand the bigger picture.
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Correlation, which reflects investment interrelationships, is an important concept that has guided investment portfolio decisions for many years.
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Alternative investments fall outside the boundaries of traditional strategies like buying stocks and bonds. Learn more about the key characteristics of these types of investments and explore some popular strategies, including private equity and real estate.
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While not for everyone, alternatives can play an important role for investors trying to meet certain financial goals. Explore how these strategies may help diversify a portfolio, enhance return potential, or mitigate downside risk.
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Navigating the risks, unique complexities and potential rewards of alternative investing takes understanding. Financial advisors can help investors choose the right strategies and identify suitable managers.
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A reflection of changing regulations and lending practices of banks, alternative credit – or providing illiquid financing to borrowers unable to access public credit or in need of custom loan terms – has seen an uptick in new and attractive opportunities.
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Evaluating the merits of any investment should include a review of the risks. This is especially true of alternatives, where complex and sometimes speculative strategies come with considerations such as leverage, illiquidity, and volatility.
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