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ASK
OUR EXPERTS...
Can you give me some advice on managing my financial
portfolio during volatile markets?
By Gord Ferguson of Edward Jones
The key to weathering turbulent market fluctuations is to own a balanced,
well-diversified portfolio of quality investments.* If you concentrate just
on quality stocks, you are likely missing an important piece of a
diversified portfolio - bonds. The income that bonds provide can serve as an
anchor in stormy markets.
When stock prices decline, bond prices may rise, and vice versa. This
inverse relationship can help a balanced mix of investments achieve more
stable returns. As a result, owning bonds during a stock market downturn can
help to reduce your losses. The following chart shows that bonds have
provided positive returns in five of the last six years that stock returns
were negative. During those six periods, stock returns dropped an average of
– 7.2%, while bonds gained an average 6.5% — a difference of almost 14%.
Choose bonds with different maturities and from different issuers. This
strategy, known as “laddering”, isn’t dependent on future interest rates for
success. It can, however, provide the opportunity for your portfolio to
prosper under various market conditions. When laddering bond maturities, you
need to have some variety in the call protection, which is the time during
which a bond, with a call provision, cannot be redeemed by the issuer.
You should regularly review your investments to help ensure that they stay
in line with your long-term financial goals. And remember, building a
well-balanced portfolio doesn’t happen overnight. It’s an ongoing process.
So it makes sense to schedule an appointment with your financial advisor at
least once a year. This meeting can help determine whether you have the
proper mix of bonds and stocks that matches the level of risk you can
accept. If needed, you can re-balance your investment to help make sure
you’re on track to meet your long-term goals.
*(diversification does not ensure a profit, nor does it protect against loss
in declining markets)
Provided by Gord Ferguson of Edward Jones. Written by Mario DeRose, CFA.
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