Adding fixed income to your portfolio

Editor’s Note: from http://www.bnn.ca

Although stock markets can offer much excitement on a day to day basis, you might want to consider some fixed income investments as part of your overall investment and asset allocation strategy. Why? Because fixed income can help lower the risk of an all-equity portfolio and can provide a steady income stream if you need to supplement income sources.
 Bonds fall under the category of fixed income. There are all kinds: corporate, municipal, provincial, and government bonds. Bonds are rated to give the investor an idea of the risk and stability of the issuer. The highest rating is an AAA. Typically, the higher the rating of the bond, the lower the yield.
 Historically, bonds have had better returns than cash investments such as GICs and money market instruments, and have shown less volatility than many stocks. During market downturns, having bonds in a portfolio can help to offset the volatility of equities and provide positive returns.
 Benefit: Reduces overall risk in a portfolio.
 How to get fixed income exposure?
Consider:
   ·         Individual bonds
   ·         Bond mutual funds
   ·         Bond ETFs 
Additional income source:
Individual bonds generally pay out their interest on a semi-annual basis. However, there are some that can pay annually or monthly. Bond mutual funds provide diversification within fixed income securities and in many cases, provide monthly income to investors. Bond ETFs often provide income quarterly, and sometimes monthly.
 It is important to know that the bond market is large and vast and larger than the equity market and does have its share of volatility. And, in general, when interest rates rise, bond prices fall and vice-versa.

Bond Pick to Insulate Your Fixed Income Portfolio