It is widely known that Fixed Income securities are well suited for investors looking for reliable income streams and preservation of capital, but the ownership type of these securities is also important. When investors buy fixed income securities, they are ostensibly lending money to a borrower in exchange for specified interest payments and the return of principal when the bond is either called or matured. Most commonly, losses may occur if an issuer defaults or interest rates rise and the security is sold realizing a loss.
A recent Moody’s study, which compared the cumulative default rates for Municipal and Corporate bonds from 1970-2018 that held a Moody’s rating highlighted the historical strength of municipal securities vs their corporate relatives. Rated Corporate securities were 30 times more likely to default in the 10 years after being issued than rated Municipal bonds (8.84% vs .29%).
As PIM Portfolio Manager, I work with clients to help build bond portfolios that can tailor interest payments, liquidity needs, credit quality, duration and tax efficiency to their specific needs. Investment decisions are made at the individual level and thus may be more desirable than other ownership types. For fixed income investors, I believe the benefits of holding individual securities, rather than pooled investment vehicles such as mutual funds or ETF’s, provides increased transparency and control over their holdings. With pooled investment vehicles, the Portfolio Manager(s) must buy and sell securities to satisfy the collective needs of all its investors along with any inflows or redemption needs. There may be unexpected tax bills with some with mutual funds or ETF’s. It is the flexibility of using individual securities, combined with the historical strength of fixed income markets that help our clients preserve the wealth they have worked so hard to achieve.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can cause a bond’s price to fall. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Fees for the PIM program include Advisory services, performance measurement, transaction costs, custody services and trading. Fees are based on the assets in the account and are assessed quarterly. There is a minimum fee of $250 per calendar quarter to maintain this type of account. The fees do not cover the fees and expenses of any underlying packaged product used in your portfolio. Advisory accounts are not appropriate for all investors. During periods of lower trading activity, your costs might be lower if our compensation was based on commissions. Please carefully review the Wells Fargo Advisors advisory disclosure document for a full description of our services, including fees and expenses. The minimum account size for this program is $50,000.