Question of the Week

Dave, a conservative investor, comes to you for advice on a diversified fixed-income portfolio. He wants to live off the interest generated from the bond investments, in which he needs 6% per year. Dave is afraid that interest rates might be on the rise. All of the following should be considered when buying the bonds EXCEPT:

a) Maturity of the bonds
b) Coupon rate
c) Debt-to-Equity
d) Quality of the issue


The correct answer is c:

When setting up a diversified bond portfolio you should consider the following factors- maturity, taxes (location of the issuer), coupon, quality, and the current interest rate environment, to name a few considerations. The debt-to-equity of the issuer is typically not a primary concern.