Advisor Flipbooks

5 Individual Bond Strategies Bullet strategies. Bullet strategies are designed to help investors gradually accumulate a specific amount of money by a specific date. The portfolio is constructed over time, with all purchases maturing around the same target date. For example, Exhibit 3 highlights an investor seeking to accumulate money with which to fund a child's college education 15 years in the future. This strategy can be used for any accumulation goal, such as handling a balloon payment on a mortgage or planning for retirement. The bullet strategy is built by targeting a specific maturity date. The bullet strategy can be built using different portfolio styles or components, including municipal bonds, government bonds, corporate bonds, and Treasury Inflation-Protected Securities (TIPS), based upon the investment goal and market expectations. In the example below, the initial purchase will be invested over the course of one year, with the first purchase representing 25% of the assets and the remaining 75% of assets evenly distributed and invested during the subsequent three quarters. Staggering the acquisition dates helps mitigate the risk associated with rising interest rates, as each investment beyond the first has the potential to earn a higher rate of return than the previous one. Conversely, if interest rates fall, a "bullet" bond strategy benefits by potentially realizing price gains on the bonds held, as the value of longer-term bonds with fixed coupon rates increases when market interest rates decrease. Exhibit 3: Bullet bond strategy For illustrative purposes only. Not meant to represent any actual investment. year maturity date Q Q Q Q

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