In regards to decision-making pertaining to any investment, having a goal is very crucial. Any goal cannot be achieved without having a defined strategy towards it.

A famous quote “A spirit with a vision is a dream with a mission” by Neil Peart replicates the importance of having a strategy towards your goal.

In the same way, having a strategic decision in bond investment is equally important to achieve the desired goals.

In a bond investment strategy, diversification plays an important role. A general rule states, it is never a good idea to invest all money in a single asset class. Diversifying the risk within bond investments by creating several portfolios of several bonds each having different characteristics is crucial.

Bond investment can provide investors with multiple possibilities in terms of high yields, different categories of bonds such as government bonds, corporate bonds, municipal bonds, mortgage-backed securities, etc. Choosing bonds with different maturities helps to manage interest-rate risks.

Keeping that in mind, below are some investment strategies used while making bond investment decisions:

Bond Laddering Strategy- Bond Ladders are considered one of the common forms of bond investing. This means dividing the portfolio into equal parts and investing in the ladder-style maturities.

For example, one, three, five, and ten years. As each bond reaches maturity and the principal amount is repaid, investors can reinvest that amount in a 10-year maturity bond. Longer-term bonds offer higher interest rates. Since none of the bonds mature at the same date investors create a diversified maturity distribution. It is also called as “maturity weighting” strategy since it involves dividing the money amount different bonds with different increasing maturities.

Bond Barbell Strategy - Under a Bond Barbell strategy an investor targets only short-term and long-term bonds. Owning longer-term bonds lets you lock in for higher interest rates wherein short-term bonds are flexible in nature that gives an investor the flexibility to invest in other asset classes if interest rates fall too low. On the other hand, if the interest rate rises investors can hold the short-term bonds till maturity and reinvest them at the higher prevailing rates.

For example, an Investor buys two bonds consisting of one with longer-term maturity and the other with short-term maturity. Once the short-term bond matures then investors can decide if to reinvest the principal amount either in bonds if prevailing rates are high enough to generate sufficient income or in other more short-term investments if the investor feels the interest rate may soon rise. Simultaneously investors continue to receive interest from the longer-term bonds.

Bond Bullet Strategy - Bullet strategy refers to when investors buy several bonds with having the same maturities. This strategy is effective when an investor needs the money for a specific purpose at a specified period of time. For example, An investor purchases bonds with 10 years of maturity to finance the particular purpose with all the principal amount received. It also helps an investor to reduce the exposure of fluctuating interest rates specifically for longer-term maturities.

Bond Swapping Strategy - Bond Swapping strategy refers to the selling of existing bonds and simultaneously purchasing another bond from the existing bond sales. The benefit out of this strategy is to take advantage of prevailing market conditions like a change in the interest rate of bonds. Bond Swapping strategy also provides certain tex benefits. Tax swapping is very popular for bond swaps.

Bond Interest Re-Investment Strategy - Investors under this strategy can reinvest the interest payments they earn from the existing single bond instead of spending it. For example, an interest earned from the individual bond can be reinvested in the regular savings account and at the year-end, this can be again invested in a bond under the bond ladder strategy. This leads to a cumulative rise in the wealth of an investor.

Before investing it is very crucial to define the objective behind an investment as well as equally important to identify your risk appetite. Bondskart has a team of experts that guides you through the different bond investment decisions. Through Bondskart you can conveniently explore and make your bond investments.