Education Center
Investor Education
Bonds
A bond is a fixed income investment representing a loan made by an investor to a borrower. Borrowers include governments, companies, and other entities issuing bonds to raise money to fund their operations.
If there is one thing that makes bond investors nervous, it’s when interest rates rise. But rising rates aren’t always bad – there are several ways to navigate and benefit from rising rates.
Here we offer simple, practical responses to some of the most commonly asked questions about bonds.
Asset Allocation
Asset allocation is the process of balancing a portfolio’s risk and return by investing across various asset classes to help investors pursue their investment goals.
Portfolio construction is key to achieving investment goals. Understanding the general principles of how asset classes work together can provide investors with the foundation for constructing well-diversified portfolios.
In today’s market, investors face a complex environment that requires a more sophisticated approach to asset allocation. One of the keys to effective asset allocation is a long-term, strategic approach that can adapt to investors’ changing needs and investment objectives over time.
Investing Concepts
Financial market performance is driven by several complex, long- and short-term factors influencing the economy, markets, and investment returns. These include central bank policy affecting interest rates and employment, fiscal policy, company-specific performance, and geopolitical events. To make sense of all this information, PIMCO publishes its proprietary Cyclical Outlook and Secular Outlook four times a year, providing well-rounded views on the global economy, markets, and various asset classes.
Daily news often include headlines on the latest government spending and tax decisions, along with current views on interest rates. Understanding how fiscal policy and monetary policy may affect the performance of different markets can help investors make more informed investment decisions.
Macroeconomic trends, like changes in gross domestic product (GDP), interest rates, employment, as well as consumer and business spending, affect how financial markets perform. Understanding these indicators and how they influence various asset classes can help investors navigate the constantly shifting investment landscape.
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Disclosures
Past performance is not a guarantee or a reliable indicator of future results.
All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Management risk is the risk that the investment techniques and risk analyses applied by PIMCO will not produce the desired results, and that certain policies or developments may affect the investment techniques available to PIMCO in connection with managing the strategy. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Alternatives involve a high degree of risk and prospective investors are advised that these strategies are suitable only for persons of adequate financial means who have no need for liquidity with respect to their investment and who can bear the economic risk, including the possible complete loss, of their investment.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market.
PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Any tax statements contained herein are not intended or written to be used, and cannot be relied upon or used for the purpose of avoiding penalties imposed by the Canada Revenue Agency or provincial, territorial and local tax authorities. Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.
The products and services provided by PIMCO Canada Corp. may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. PIMCO Canada has retained PIMCO LLC as sub-adviser. PIMCO Canada will remain responsible for any loss that arises out of the failure of its sub-adviser.
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PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.
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