The past year was challenging with high interest rates and inflation, recession fears and a war which set the stage for nervous investors and downward markets. While all the major equity and fixed income asset classes were down, alternative “enhancer” asset classes had mixed results, supporting a well-diversified portfolio. In addition, a tilt towards quality and value further protected portfolios from experiencing the full decline of the markets.
Investors are shocked that the so-called 60/40 portfolio failed to provide protection from the bear market in stocks this year. Many thought stock and bond prices always move in opposite directions, which was the foundation of their diversification strategy.
This year, interest rates have increased dramatically, leading to significant declines in bond prices. You may be most aware of this if you own a bond mutual fund or ETF.
A prediction about an uncertain future is just an opinion and should not determine anyone’s investment decision. Many people learn this the hard way. Markets have always rewarded discipline – having an investment philosophy, a strategy to manage risk and sticking to it is the surest way to reap success when investing.
Laura and Steve interview Jason Stuck from Northern Capital an expert on bonds.
Warren Buffett is known for offering his investors these words of wisdom on more than one occasion. He intended to remind investors that everyone can look like a genius in a bull market, but undisciplined investing can leave you vulnerable during market downturns. Understanding and managing your risk is our number one job. Protecting against changing regimes and worst-case scenarios while providing exposure to growth is quite the balancing act. Still, financial science has proven that we can do it.
(Video Included)