Welcome to Episode 46 of Retire Me!

On today's episode I discuss factors in fixed income (bonds).

I begin the episode with an overview of the role of fixed income in a portfolio.  From there, we move into an overview of where returns come from in a fixed income portfolio.  Then, I do my best to explain the role of a yield curve and how it contains information that can be helpful when trying to anticipate future returns in fixed income.

Then we discuss the main factors in fixed income which are:

• Term Premium – longer term bonds have higher expected returns than shorter term bonds
• Credit Premium – riskier bonds (ie. corporate bonds) have higher expected returns than less risky bonds (ie. government bonds)

I take us through our regular criteria for factors, remember, a factor needs to be:

• Additive
• Persistent
• Pervasive
• Robust
• Investible
• Intuitive/Sensible

I finish the discussion with a debate on whether credit premiums should be pursued in a portfolio.  Larry Swedroe advocates for opting away from credit factors in fixed income.  DFA pursues these factors in a dynamic and systematic way in their portfolios.  We discuss some research from DFA to help us here.

My show notes and links will be on my blog this week at www.walhoutfinancial.ca/podcast

Thanks for listening!

Mark