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Bond Market

Trading vs. Investing... Growing vs. Protecting

  • 10.12.21
  • Markets & Investing
  • Commentary

Doug Drabik discusses fixed income market conditions and offers insight for bond investors.

Trading and investing (as it pertains to bonds held in your investment portfolio) may seemingly be equivalent but they are inherently quite different. Trading is tactical and results often rely on dynamic timing, accurate forecasting and economic data attentiveness. Expected possible consequences to more volatile trading are potentially greater gains but also greater losses. Investing is much less active, often strategically long-term and significantly more predictable. Fixed income disciplinary disciples often utilize bonds as investments, not trading vehicles.

There are numerous “distractions” amplified by drama-driven media outlets that can be disruptive forces when investing. It may be inefficient to underestimate the power of fear and emotion on economic conditions. Take for example the 2020 pandemic. Is your garage or basement chockfull of toilet paper, hand sanitizer or paper towels? The fear of running out initiated a hoarding of goods. The hoarding of goods contributed to the shortage itself. Some folks had plenty of supply while others had none.

Now think of the current supply chain issue. When a corporation or factory relies on a particular material for production of their product, fear of a shortage or logistic problems amplify the supply deficiency when they amass greater than needed materials. Some stores over-stock while others are left slighted and disadvantaged.

The Federal debt-ceiling is another current distraction. Although the Senate approved legislation late last week to raise the debt ceiling, it is a short-term fix that kicks the can down the road for two months before it resurfaces again. This self-imposed legislative rule was created by Congress, and can be eliminated by Congress or amended at any time by congress. The notion that Congress would ever let our U.S. debt default over an arguably political-based rule used more for political grandstanding than as a useful economic tool, is absurd. Yet, this distraction periodically induces market movement.

The common denominator is that momentary distractions may affect trading decisions but rarely should alter fixed income investing. Successful trading relies on timing the market in anticipation that opportune appreciation contributes to income generation. Investing is not about timing the market, but about time in the market. Distractions escalate and diminish recurrently, yet strategic long-term individual bonds perform their task of principal protection irrespective of the commotion or momentary distractions.


To learn more about the risks and rewards of investing in fixed income, please access the Securities Industry and Financial Markets Association’s “Learn More” section of investinginbonds.com, FINRA’s “Smart Bond Investing” section of finra.org, and the Municipal Securities Rulemaking Board’s (MSRB) Electronic Municipal Market Access System (EMMA) “Education Center” section of emma.msrb.org.

The author of this material is a Trader in the Fixed Income Department of Raymond James & Associates (RJA), and is not an Analyst. Any opinions expressed may differ from opinions expressed by other departments of RJA, including our Equity Research Department, and are subject to change without notice. The data and information contained herein was obtained from sources considered to be reliable, but RJA does not guarantee its accuracy and/or completeness. Neither the information nor any opinions expressed constitute a solicitation for the purchase or sale of any security referred to herein. This material may include analysis of sectors, securities and/or derivatives that RJA may have positions, long or short, held proprietarily. RJA or its affiliates may execute transactions which may not be consistent with the report’s conclusions. RJA may also have performed investment banking services for the issuers of such securities. Investors should discuss the risks inherent in bonds with their Raymond James Financial Advisor. Risks include, but are not limited to, changes in interest rates, liquidity, credit quality, volatility, and duration. Past performance is no assurance of future results.

Stocks are appropriate for investors who have a more aggressive investment objective, since they fluctuate in value and involve risks including the possible loss of capital. Dividends will fluctuate and are not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation.