Rarely do investors see negative returns from their conservative bond holdings. Bonds as an asset class are producing a rare negative year due to rising interest rates. This will only be the fourth year since 1976 that the aggregate bond index has produced a negative return. This is a short-term discomfort. Investors are now getting higher interest payments, which will be long-term attractive for bond investors. Forward returns for bonds are linked to their starting interest rate. In brief, future bond returns look brighter.
The benefits of diversification are well documented academically. We diversify among multiple asset classes and strategies because after studying the academic material, we think it is the most sensible and time-tested approach to reach individual investor goals. By remaining diversified and blending multiple asset classes together in a portfolio, an investor’s outcome is not subject to the highs and lows of a single asset class. It can be hard to be disciplined and remain diversified, but today’s underperformer could be tomorrow’s market outperformer. In the short-term, a diversified investor is always lagging whichever market or asset class is leading.
We contemplate an investor’s time horizon, risk tolerance, preferences, and liquidity needs to help select a globally diversified portfolio consistent with the investor’s risk profile. If you would like to discuss your portfolio or re-visit your risk profile, please do not hesitate to contact us.
Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and Carla J. Merlak are independent of each other.