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E VER SINCE THE FIRST SEEMINGLY SAV V Y SAVER STA SHED CA SH UNDERNE ATH A MAT TRESS, INVESTORS HAVE TURNED TOWARD SAFE HARBORS TO HELP PROTECT THEIR HARDšE ARNED DOLL ARS. BUT DESPITE A GENER ALLY HELD BELIEF, FIXEDšINCOME INVESTMENTS AND OTHER FINANCE FORTRESSES AREN'T FOOL PROOF IN TODAY'S TURBULENT MARKE T. THERE ARE HIDDEN RISKS IN SEEMINGLY STURDY SPOTS ¤ŽE VEN HOLDING CA SH ¤ THAT COULD THRE ATEN THE ONGOING MAINTENANCE OF YOUR CURRENT STANDARD OF LIVING. Credit risk. You may have potentially bought a bond that won't ma ke its pay- ment, which is one risk some investors a ren't awa re of. This risk tends to be high lighted for lower-credit-qua lit y, h i g h-y ield bond s . A s cred it rat i n g s d e c l i n e t h e p r o b a bi l i t y o f d e f a u l t i ncrea ses; doi n g you r resea rch ca n help you weigh the pros a nd cons a nd properly eva luate. Usua lly, the higher the extra yield you're receiving, the big- ger the risk. Clients should remember that not a ll bonds ma ke their payments. To m it i gat e t h i s r i sk , d iversi f y a nd consider investment-grade bonds over high-yield bonds. Inf lation risk. Severa l factors have a l ig ned —¯ i nclud i n g t he r isk-averse behavior of globa l consumers a nd busi- nesses eyeing their ba la nce sheets — to r e duc e e x p e c t at ion s of si g n i f ic a nt i n f lation i n t he nea r f ut u re. Sti l l, i f you're pla nning to live of f your bond i ncome, you shou ld be wa r y of t h i s possibilit y. One of the risks of owning bonds, especia lly for investors locked into a longer stream of payments, is that inf lation will be higher tha n expected, so t he strea m of pay ments buys less tha n it other wise would have. To m i t i g a t e t h i s r i s k , c o n s i d e r bonds w ith shor ter maturities. A lso, consider look i ng i nto U. S. Trea sur y I n f l a t ion-P r ot e c t e d b ond s ( T I P S ), because w it h t his investment , when t he Consumer Pr ice Index r ises, t he principa l automatica lly adjusts. Think twice before locking in bonds for 20 or 30 yea rs. Interest rate risk a nd ca ll risk . There's a n inverse correlation between interest rates a nd bond prices, mea n- ing that as interest rates go up, prices go dow n . Cl ient s who a re ca ref u l ly exa m ining t heir statements a nd a re concerned about price f luctuations a re advised to be cautious. Interest rates a lso a f fect issuers of ca l lable bonds, who have t he option of repay i ng t he bond ea rly if interest rates decrea se, stopping reg u la r pay ments a nd most likely leading to a new bond with a lower interest payment. To mitigate this risk, diversif y your income sources; avoid becoming dependent on monthly income from bonds. Liquidity risk. Treasur y bonds a nd bonds issued by big corporations tend to be more liquid, which is of interest to a slew of active investors. So, as with the stock market, if many people start to sell bonds as interest rates rise, va lues could drop further. On the other hand, if you're tr y ing to sel l a less liquid bond, such as a municipa l bond, you won't f ind as ma ny potentia l investors during times of stress, which could result in a lower pr ice if you're forced to sel l because you need access to ca sh. To mitigate this risk, time the maturities of your bond por t folio to match a nticipated liquidit y needs. Cash risk. Whether it's bundled up in bills in the bed or in a bank, good old- fashioned cash can still be a risk. The problem with cash is that it yields almost nothing today, because the rates are so low. At a 1.5% or 2% inflation rate, you're slowly losing purchasing power. That's likely to be the case for a considerable period of time. To mitigate this risk, examine your portfolio and determine how to hold rea- sonable (rather than excess) amounts of cash to meet near-term liquidity needs a nd emergency ex penses whi le sti l l giving you opportunity to invest in higher- growth assets. Paul Guerra is the Managing Principal of Brookshire Wealth Management in Canton , Ohio. For more information visit www.brookshirewealth.com or email Mr. Guerra at pguerra@wfafinet.com. Investment products and services are offered through Wells Fargo Advisors Financial Network , L LC ( W FA FN ), Me m b e r S I P C . B r o o k s h i re We a l th Ma n a g e m e n t i s a s e p a r a t e e n t i t y from WFAFN. Wells Fargo Advisors does not provide legal or tax advice. Be sure to consult with your tax and legal advisors before taking any action that could have tax consequences. Please consult your legal advisors regarding your fiduciary duties. Wells Fargo Advisors Financial Network, LLC, Member SIPC, is a registered broker- dealer and a separate non-bank ažliate of Wells Fargo & Company. ■ BY PAUL D. GUERRA AVOIDING BY PAUL D. GUERRA AVOIDING HIDDEN RISKS M D N E W S . C O M /// M D N E W S C L E V E L A N D /A K R O N / C A N T O N n J U LY/A U G U S T 2 016 F I N A N C I A L P L A N N I N G 2 1