Quora Answer: How Do I Create a Bond Portfolio That Has 3.5% Return with Low Volatility?

The following is my answer to a Quora question: “How can I go about creating a bond portfolio that targets about 3.5% with as low volatility as possible?”

A bond portfolio that earns that much per annum would preclude a heavy weightage on T-bills and other sovereign bonds of investment grade.  This would raise the risk profile of the portfolio.  You may consider a primary portfolio corporate papers of various grades, and top it off with short term bonds of various types, including municipal bonds.  They may bring you closer to your earnings target whilst keeping the portfolio relatively low risk.  The easiest way would, of course, be to have a heavy weightage towards high risk bonds, so-called junk bonds, but that is more akin to gambling than actual investment, and that is not to my taste.  Investment should be treated as an art, based on hard sciences and mathematics.