Education Centre
Investor Education
Bonds
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The bond market is by far the largest securities market in the world, providing investors with virtually limitless investment options. Many investors are familiar with aspects of the market, but as the number of new products grows, even a bond expert is challenged to keep pace. Once viewed as a means of earning interest while preserving capital, bonds have evolved into a $100 trillion global marketplace that can offer many potential benefits to investment portfolios, including attractive returns. Before tackling the complexities of this huge and diverse market, it is important to understand the basics: What is a bond and how can bonds help meet your investment goals?
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.
Most bond investors know that interest rate changes can affect the value of their fixed income holdings. How a bond or bond portfolio’s value is likely to be impacted by rising or falling rates is best measured by duration.
The term “yield curve” is frequently used by investors and commentators when discussing the outlook for bonds, markets, and the economy. Investors can use the yield curve as a tool to assess general economic conditions to help guide their investment decisions.
There are various investment strategies bond investors can use to pursue their financial goals, including those that fall under an active or passive investment management strategies.
Alternatives
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As part of a well-diversified portfolio comprised of different asset classes, alternative investments can help investors pursue attractive returns.
For large institutional investors with a tolerance for illiquidity, alternative investments include a combination of hedge funds, private equity, alternative credit, and real estate. Individual investors can access the same opportunity set, in addition to vintage cars, rare wines, and fine art.
Alternative investments can be accessed through a range of investment types and strategies designed to produce return streams outside of traditional stock and bond investments.
Asset Allocation
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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.
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.
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
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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.