- Having a bond and stock portfolio is no longer sufficient to ensure effective diversification and consistent returns.
- Many professionals agree on that volatility is here to stay
- Emotions should not dictate investment decisions
In a global environment of financial and geopolitical crises, divergent economic growth and a dichotomy of monetary policies among developed markets, volatility has dominated the investment dialogue and many professionals agree that it is here to stay.
In your search for positive returns you should remember to keep a steady head and a clear strategy—including a diversified range of investment opportunities—to help navigate the current market volatility.
Firstly, do not let fear and emotions decide your investment strategy. Unfortunately, after many years of low volatility, making sense of the current environment without giving free range to your emotions can prove challenging. Above all, you need to always remember that you are invested for the long run. You should maintain this long-term perspective, and avoid turning over your positions too often with the market’s ups and downs. “Timing the market” and trying to sell stocks when you think the market is about to decline, and buy when you think it is about to rise, is difficult to do successfully with consistency and can be quite risky for your portfolio. For example, if you had invested $100,000 in the S&P 500 Index between January 1st, 1995, and December 31st, 2014 your initial investment would have grown to $654,055. However, missing just the FIVE best days would have cost you over $200,000,
Also important to note is that diversification has changed. Having a bond and stock portfolio is no longer sufficient to ensure effective diversification and consistent returns. Given current market conditions, if you want to protect your investments and/or take advantage of all the potential opportunities in the market, you need to cast a wider net across variety of assets, including active, index and multi-asset strategies as well as nontraditional investments. While nothing can guarantee consistent outperformance, enhanced diversification does expand your sources of risk and return.
To increase your portfolio's chances of success, considering the following actions:
- Build a better bond portfolio – Analyze why it is you want exposure to bonds, and look for the best fixed-income tools for your particular case. For example, an unconstrained bond strategy and the flexibility it gives you, might be useful in navigating interest rate risks.
- Increase global exposure – The same techniques for diversifying via sector and asset classes, can be applied to geography. International exposure, to the right markets, can offer better returns than just investing in your domestic market.
- Look for dividend paying stocks – This strategy can help provide much-needed downside protection in difficult environments while participating in up markets. Although there is no guarantee that companies will continue to pay dividends, this income can help smooth volatility in unpredictable markets.
- Expand to other asset classes- By creating a more diverse and flexible portfolio you start to take advantage of all the financial markets have to offer. This may require seeking opportunity in places you have never looked before such as Real Estate or Long-short funds. It also warrants the use of a wider variety of active, index and multi-asset strategies.
In today’s environment of low growth it is important to use all tools, from the precision exposures allowed by exchange-traded funds (ETFs) to the unbridled reach and flexibility afforded by unconstrained active strategies, to achieve your investment goals.
This material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator in any Latin American and Iberian country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.