We primarily use bonds in structuring a balanced account to dampen any potential near-term volatility from the equities in the portfolio with our private clients. Just as with the equity asset class, our objective in managing a bond portfolio is to maximize the potential total return while controlling risks. For taxable clients, an important factor in the total return is the client's marginal tax rate, which we consider when determining the bonds that are most appropriate for maximizing the client’s after-tax return. Due to the lower return potential and lower liquidity that is available with fixed-income securities, trading costs can also be significant, and specific securities must be carefully selected to minimize these costs.

Another key factor in the total return is the potential default risk. We search for high-quality, investment-grade bonds that meet our objective of driving this risk/cost to near zero. Any significant deterioration in a bond's credit quality is closely monitored, and the bond is sold if deemed appropriate. We try to avoid restrictive call features that result in taking away some of our potential upside return but leaving us with the downside risk.