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Fixed Income Funds
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| Fixed income funds provide investors with important features like monthly income, portfolio diversification, professional money management, and daily liquidity. But how do you know which combination of funds may be best suited to your investing goals? |
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| Some money managers believe you should think of the income portion of your portfolio in terms of three categories: |
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The first category includes extremely stable and liquid investments, such as taxable or municipal money market funds. |
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The second category includes relatively stable investments that offer moderate yields and some principal protection (e.g., longer duration Treasury securities and high-quality municipal or corporate bonds). |
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The third category includes high yield investments, for potentially higher but more volatile returns from assets to be invested over a period of two or more years. |
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| Fixed income mutual funds generally fall into the following categories: |
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Broad Market Bond Funds |
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Government Bond Funds |
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Mortgage-Backed Bond Funds |
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Municipal Bond Funds |
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High-Yield Funds |
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Money Market Funds |
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| Fidelity's broad market bond funds invest in many different types of bonds including those issued by the U.S. government, government agencies, corporations, and bonds backed by mortgages. Investing in broad market bond funds can be an easy way to diversify your portfolio to include a wide variety of bonds from many different issuers, with varying maturities and credit quality. |
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| Fidelity's broad market bond funds differ by credit quality and duration. |
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Credit quality. Your risk tolerance and time horizon should help you determine whether a fund that invests in lower-credit-quality bonds is right for you. Investments in non-investment-grade bonds may help boost a fund's long-term performance, but may also result in greater volatility. |
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Funds That Focus on
Investment Grade-Quality
Bonds |
Funds That Have a High-
Yield and/or Emerging
Markets Component |
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Duration. A fund with a longer duration - an indicator of an investment-grade fund's sensitivity to changes in interest rates - will have the potential to offer higher long-term returns, but may experience greater share price volatility when interest rates rise. When considering an investment-grade fund, you might consider one with a longer duration if you have a long-term time horizon to enjoy greater potential rewards. |
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| Fidelity's government bond funds invest in bonds issued by the U.S. government and government-sponsored enterprises such as Fannie Mae and Freddie Mac. U.S. government securities include Treasury obligations, mortgage- and other asset-backed securities. Because of the high credit quality of U.S. government securities, government bond funds will not offer the highest yields, but are a good way to offset some of the credit risk you may have in other parts of your portfolio. |
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| Fidelity's Government Bond Funds |
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| Fidelity's mortgage-backed bond funds invest in bonds backed by pools of mortgages. Mortgage securities may be U.S. government securities or issued by a bank or other financial institution. Mortgage-backed bonds typically offer the potential for higher income than their U.S. Treasury counterparts. For that reason, mortgage funds may be an attractive investment for those seeking high current income. |
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| Fidelity's Mortgage-Backed Bond Funds |
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| If you're in a higher tax bracket, you may benefit from the tax advantages that municipal bond funds can offer. Municipal bond funds offer lower yields, but the income they generate is free from federal, and in some cases, state and local taxes. Municipal bond funds provide a convenient and cost-effective way to invest for tax-free income. |
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| Fidelity's National Municipal Bond Funds |
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| Fidelity's State Municipal Bond Funds |
| Funds are available for residents of Arizona, California, Connecticut, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, and Pennsylvania |
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| Funds that invest primarily in lower-credit-quality securities may complement the other bond as well as stock funds in your portfolio. They can offer the potential for higher income and total returns than investment-grade bond funds, but also have the potential for greater volatility. Because high yield does not necessarily move in lockstep with either investment-grade bonds or stocks, adding this riskier asset category can potentially help to diversify your portfolio and improve its overall risk profile. |
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| Similarly, - funds that invest in bonds of foreign issuers, including emerging market countries - may be appropriate for a portion of your total fixed income portfolio, but should not be your sole holding. |
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| Fidelity's High-Yield Bond Funds |
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| Fidelity's International Bond Fund |
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| Money market funds offer many advantages. Money market funds invest in very high quality, short-term instruments and are managed to maintain a constant $1.00 price per share. For those reasons, they offer potential principal stability, liquidity, and competitive yields to many FDIC-insured alternatives. Money market funds can be a convenient parking place for your cash in between investments, or can serve as an investment for the portion of your portfolio that you need ready access to. Investors should be aware that returns may not keep up with inflation, leading to erosion of purchasing power. |
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| Although bonds generally present less short-term risk and volatility than stocks, bonds do entail interest rate risk (as interest rates rise, bond prices usually fall and vice versa) and the risk of default, or the risk that an issuer will be unable to make income or principal payments. Additionally, bonds and short-term investments entail greater inflation risk, or the risk that the return of an investment will not keep up with increases in the prices of goods and services, than stocks. You may have a gain or loss when you sell you shares. |
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| The bonds of below-investment-grade companies are more sensitive than investment-grade debt to the condition of the individual issuer, and thus involve less interest rate and inflation risk, but greater risk of default or price changes due to potential changes in the credit quality of the issuer. |
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| Investments in foreign securities, especially those in emerging markets, involve risks in addition to those of U.S. investments, including increased political and economic risks as well as exposure to currency fluctuations. |
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| Diversification across asset categories or number of issuers does not ensure a profit or guarantee against loss. Funds that focus on a relatively small number of issuers tend to be more volatile than diversified funds and the market as a whole. |
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| A portion of the dividends you receive from the Municipal bond funds may be subject to federal, state, or local income tax or may be subject to the federal Alternative Minimum Tax (AMT). |
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| Investments in mortgage securities are subject to prepayment risk, which can limit the potential for gain during a declining interest rate environment and increase the potential for loss in a rising interest rate environment. |
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| An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. |
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