When you go shopping for pants, do you buy one pair in every size available? Most people do not, presumably because only one size is the most appropriate fit.1
For many investors, bond portfolios should be similarly well-fitted. Bonds help manage risk, and risks are often specific to the individual. Some investors may be saving for an upcoming down payment on a house, while others may be funding liabilities further in the future like college tuition or retirement spending. A strategy focused on shorter maturity bonds may be most appropriate for the former, while the latter is typically better supported by a strategy with bonds maturing at a longer time horizon.2
For that reason, index-based strategies tracking the broad bond market make little sense for most investors. Bloomberg’s U.S. Aggregate Bond Index, for example, comprises bonds maturing in anywhere from 12 months to over 30 years. Bond strategies taking a more targeted approach to security selection may help investors better tailor their portfolios to financial goals.
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