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Bonds and Fixed Income InvestmentsBonds play an important role in building well diversified portfolios at Cardinal Capital by lowering risk and providing more certain income and cash flow than common stocks. As senior securities, bonds have a priority call on cash flow, an important feature in times of economic duress. Lower risk and more assured returns have a price, however, lower returns than common stocks over the long term. For many this is an appropriate trade-off to make with a portion of their investment assets. To maximize the risk reduction and cash flow attributes of bond investments, Cardinal Capital focuses on individual, marketable, high quality bonds in constructing client portfolios. For taxable investments, we seek bonds rated A or better from issuers with low business and event risk. For tax exempt bonds, we confine our interest to issues backed by taxing power or essential service revenues. We require an underlying single A rating or better regardless of the existence of bond insurance. Stretching for yield, using leverage or lowering credit quality undermines the primary attributes of fixed income investments: low risk and cash flow assurance. The price for such practices can be high in recessionary times as many banks, brokerages, insurance companies and individual investors have learned during the last two years. Similarly, we do not invest in high yield or junk bonds since they are full of equity risk. We prefer to invest directly in equities with funds that can accept equity risk. Bond funds, packaged products or pooled securities are also avoided since we prefer to more closely match the bond portfolio’s characteristics with the needs of our clients. Bonds have an important role to play for many investors. We invite inquiries about how we can help you reach your investment goals by including bonds in a well diversified portfolio. |
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