The fixed income dilemma

In the past, when investors felt uncertain about the market, they would rely on the fixed income portion of their portfolio to protect themselves from risk. Historically, an allocation to bonds would deliver not only high income, but also portfolio protection. But today, that may no longer be the case.

Since the 2008 financial crisis, three key risks have been escalating in fixed income:
  1. A shrinking yield cushion -- With rates at historic lows, and little room for rates to drop further without going negative, bonds may not have the ability to provide portfolio protection like they used to.
  2. Rising interest rate risk -- Since 2008, interest rate risk has been rising, while bond yields have been falling, leaving investors with more risk for far less reward.
  3. Increasing credit risk -- Nearly half of the corporate bond market is BBB-rated, the lowest tier of investment grade ratings.1 During a recession, downgrades and defaults rise. Is the stretch for yield worth the risk?

Is the reward worth the risk?

Over the past 30 years bond returns averaged approximately 6%. But today, it’s unlikely fixed income will generate such returns. Many industry leaders expect returns of 1%–3% in the coming years.2 With bonds likely to return 50+% less than they have historically, how do you position a portfolio for growth, without taking on more risk than a client is comfortable with?

Know the risks of bond investing today

Contact us at 877-533-0265 to get our exclusive paper, “The Fixed Income Dilemma.”

If fixed income isn’t what it used to be, where can your clients turn to find the balance of protection and growth that’s right for them?

So, what now?

Clients will be searching for ways to grow their portfolios to help meet their savings goals without taking on more risk than they are comfortable with. This will require looking beyond a traditional 60/40 stock-to bond allocation .3 Consider shifting a portion of the portfolio away from fixed income, and into a strategy that offers meaningful portfolio protection and more upside growth potential.4 It can also be an opportunity to reduce cost all while staying true to their stated risk tolerance.

Partner with us

Contact your Lincoln representative today at 877-533-0265 for more about the fixed income dilemma and successful strategies to diversify retirement portfolios. For additional tips and insights, make sure you follow us on LinkedIn and Twitter .

Amber Williams

Amber Williams is Vice President and Managing Director, Client Investment Strategies within Funds Management for Lincoln Financial Group. In this role, she is responsible for providing thought leadership, investment expertise, and education to financial professionals across all of Lincoln’s business lines.

Amber holds a B.A. degree in Accounting from University of Phoenix and is a Chartered Financial Analyst (CFA) Charterholder.