One way to employ bonds in your investment strategy is to create a diversified portfolio of mutual funds that includes bonds, stock, real estate and cash investments. Integrating bonds into your portfolio should be done in consultation with your Thrivent Financial representative, who will help you develop a portfolio that suits your individual needs, objectives and comfort level.

Including bond funds in your portfolio is important for several reasons:

• Generate current income.Bond funds generate dividends from the bonds they hold. If you depend on your investments for current income, consider bonds or bond funds as a mainstay of your portfolio.
• Balance your portfolio. Because bond markets typically move counter to the stock market, experts generally agree that investors should own both stock and bond funds to balance their portfolios. Including bond funds can help reduce overall investment volatility and risk.
• Build assets. Reinvesting income from bond funds gives those funds the potential to grow by compounding, thus making it easier for you to reach your long-term financial goals.

As investment options go, bond funds are attractive because they offer the potential to preserve and increase capital and to provide a stream of income.

When investing in bond funds, consider:

• Interest rates and bond values. Bonds have an inverse relationship with interest rates: when interest rates rise, the value of existing bonds goes down: when interest rates fall, their value goes up. Interest-rate risk means that the bonds in a portfolio may decline in value due to increases in interest rates.
• Credit risk. Most bonds are valued by credit-rating agencies based on the risk that the issuer of the bond may not be able to pay ongoing interest due on the bond and/or return the principal to investors when the bond matures. Credit risk is the risk that the bond issuer will default on payments to the bond holder.
• Yield. Yield is a component of the return that you actually earn on a bond fund. Bond funds offering higher yields usually carry more risk.
• Prepayment risk. Prepayment risk is the risk that bonds owned by a bond fund may be redeemed earlier than expected by the company or government that issued them. Some bond issuers retain this right and usually exercise it in times of falling interest rates so that they can replace bonds paying higher interest rates with those paying lower interest rates. When a bond is redeemed, or called, by its issuer, the fund manager must reinvest the proceeds in bonds with lower yields or interest.

If you’re interested in investing in bond funds or discovering what Thrivent Investment Management can do for you, contact a Thrivent Financial representative today.