Investors who are uncertain about which way to turn in today’s bond markets can learn more about their options for fixed income investing in a new paper released by Charles Schwab.

The paper looks at several bond investing themes investors should be mindful of at a time when many believe their only choices are to lower their expectations or take on more risk.

“The current environment of low interest rates and market volatility can be disconcerting for investors if they don’t fully understand how to navigate through it,” says Kathy Jones, vice president and fixed income strategist for the Schwab Center for Financial Research and author of the paper. “Bonds can serve a critical function in investors’ portfolios, so it’s important to make deliberate decisions and not react in the moment.”

Reading the Signs in the Current Bond Market provides perspective on four topics that are top-of-mind for many fixed income investors, including:

 • Low interest rates – Even in a long-lasting low interest rate environment, bonds can help preserve capital and provide diversification. That said, investors holding long-term bonds that have appreciated in value might consider realizing some gains on those holdings to reduce duration risk. Jones says that bond ladders are another option designed to help create a predictable income stream and reduce interest rate risk.

 • Weighing the cost of cash – Sitting on the sidelines in cash or cash investments in an attempt to time the market comes with its own risks, such as forgoing income and losing the ability to compound returns. Jones and the team of fixed income experts at Schwab believe staying invested is more important than timing investments.

 • The role of muni bonds – Even though the municipal bond market will be challenged by a weak economic recovery and rising public service costs for at least a decade to come, munis remain relatively attractive overall in Schwab’s view. According to Jones and her team, when chosen carefully, munis can have yields that are greater than Treasuries, may come with tax advantages and can be a relatively stable income stream.

 • High yield comes with added risk – With US Treasury yields near 40-year lows, investors seeking income can be tempted to search for yield in riskier sectors of the bond market. Jones advises most investors to limit the amount of aggressive income investments to no more than 20 per cent of an overall fixed income portfolio.

“Whether held as individual securities or as part of a mutual fund or exchange-traded fund, bonds can help stabilise an investor’s portfolio during market volatility,” says Peter Crawford, senior vice president of asset management client solutions at Charles Schwab. “Investors want help in making sense of their fixed income investments throughout various market cycles, and the bond experts and other resources we have at Schwab are here to help them do just that.”