A key goal for investors is not just to generate competitive returns, but to do so while limiting the amount of risk.
You need to be aware of a wide variety of portfolio risks, from rising interest rates to currency movements.
Implementing diversification strategies can help “smooth” portfolio performance over time.
Generating competitive returns tends to be the dominant focus of many investors’ portfolio decisions. Yet just as important is the process of managing risk to limit potential losses; in periods of significant market downturns, managing risk tends to become a higher priority.
Maintaining a long-term investing strategy through volatile market periods typically requires a diversified investment approach. Diversification involves spreading your investment dollars among different types of assets to help temper market volatility. By “smoothing out” market performance, you may be more likely to maintain a long-term portfolio position, potentially improving your chances of meeting key investment goals.
Diversification involves spreading your investment dollars among different types of assets to help temper market volatility.
As a simple example, all equity (or stock) investments and most fixed income (or bond) investments are subject to market fluctuation. Owning a mix of stocks and bonds usually helps limit short-term volatility. During periods when stocks are struggling, bonds may perform better, helping to offset the negative returns in stocks. At other times, stocks may significantly outperform bonds.
It’s important to account for different types of risk that could affect portfolio performance. These include:
Building a diversified portfolio can help you manage risk. Here are three diversification strategies to consider as you make your investment decisions:
A properly-diversified portfolio can help you achieve more consistent returns over time, which may improve the opportunity to attain your ultimate financial goals. Your financial professional can help you determine if there are ways to enhance the level of portfolio diversification in your current investment mix.
Learn more about our approach to investment management.
Looking to diversify your investment portfolio without increasing instability in a volatile market? Consider these bonds with a lower-risk profile.
Rather than trying to time the market, consider holding on to stocks and other securities regardless of market fluctuations.