Building a Portfolio

For disciplined investors who seek a steady appreciation of their assets, bonds are an ideal choice at every stage of life. They can function as the basic building block of a diversified portfolio, providing a regular stream of income, and serving as a hedge against stock-market volatility. Asset allocation (overall portfolio mix) and diversification are two key concepts in successful investing. Both are important in reducing an investor's vulnerability to changes in any single economic determinant, such as interest rates. The percent of bonds in a portfolio will depend on an individual's age, income, financial goals, and comfort level. As a general rule, the best time to buy fixed-income securities is when interest rates are high and when the prices of bonds with lower interest rates fall. It's important to have a clear financial goal in mind when building a portfolio and in helping to determine whether to pursue an active or passive management strategy.