Chapter 3: Fixed Income and Alternative Investments
Bond cyckling
Bond cycling is an investment strategy where investors rotate between different types of bonds or bond funds based on changing economic conditions and interest rate environments. The goal is to maximize returns and manage risk by taking advantage of fluctuations in bond prices and yields.
For example, during periods of rising interest rates, investors might shift from long-term bonds, which are more sensitive to interest rate changes, to short-term bonds or cash equivalents, which are less affected. Conversely, in a declining interest rate environment, investors might move back into long-term bonds to benefit from price appreciation as yields fall. This strategy requires continuous monitoring of economic indicators and market conditions to make informed decisions about when to switch between different bond types.
Is it a better strategy
Bond cycling can potentially be more profitable than regular bond buying, but it is also more time-consuming.
This strategy lies between the more profitable and risky stock strategies and the simpler, more stable approach of regular bond buying.
It requires active management and monitoring of economic conditions, but it offers a balanced option for investors looking to enhance returns while managing risk.
When could you use it?
Bond cycling is a great strategy if you find yourself in that in-between stage, perhaps transitioning from stocks to bonds or from working to retirement.
It offers more profitability than regular bond buying and requires some active input, which can be beneficial if you're used to a more hands-on stock strategy.
This approach provides a balanced option that can help ease the transition while still aiming for higher returns than traditional bond investments.