Invest in High Quality

The overriding reason an individual, a trustee, a retirement plan participant, or anyone else invests in bonds (fixed income) is safety of principal.   Bonds serve other purposes, such as:   Produce interest income; and Dampen (reduce) the volatility of a common stock portfolio.   However, neither sub-reason has validity if the underlying bond investment does not adequately protect the principal.   All publicly traded bonds are assigned a quality rating based upon the financial stability of the issuing corporation, institution, agency or government.   RCM sees no merit in a bond portfolio that is comprised of fixed income instruments that are rated below “Investment Grade.”  While the promised interest return is slightly higher, the risk is inconsistent with safety and the return is usually below the historical returns of common stocks.   RCM bond portfolios are of extremely high quality, low risk fixed income investments.  Most are AAA rated (the highest) or U.S. Government obligations.   Bonds are for safety, producing interest income and to dampen the volatility of a common stock portfolio.  Investments in below Investment Grade bonds (known as “junk bonds”) carry high risk to the principal invested.  Remember, in case of a bankruptcy, regular bond holders are somewhat protected, while “junk bonds” are simply “unsecured” loans which are not backed by the assets of the issuing company.   Safety first:  keep credit quality high.