As the U.S. markets are enjoying growth and “High Points” the speculators and certain talking heads are beginning to promote their “plays”- get out of U.S. stocks while they are up and buy “Fixed income.” If you’ve been reading my e-mails and taking my coaching for any length of time, you will be able to recognize this as Speculating and Market Timing – and Market Timing not only does not work, but brings harm to one’s portfolio.
Speculating with Fixed Income
Those who would turn their focus to Fixed Income will often “chase returns”, looking for higher rates and yields. This is actually speculating. You see, in the search for higher returns, a speculator may look for Bonds with longer maturity dates. When you have a Bond with a longer maturity, you increase your risk (volatility) as the value is likely to fluctuate before it matures. For example, Long Term Gov Bonds are currently -11.48% (as of July 5, 2013)
If not Long Term Bonds, some may choose Municipal Bonds or even Emerging Market Bonds (down -8.22% for same period) and Corporate Bonds; again increasing their risk as these vehicles are more volatile.
Those who ran to Treasury Bills after the downturn of 2008 (up +25.8% at end of 2008), experienced great losses in that Asset Class if they held those in their Portfolios through 2009: -14.90%*
The Purpose for Fixed Income
In a properly diversified portfolio, Fixed Income helps improve stability, acting as a “cushion” against the full impact of the Equities Markets. While providing the opportunity for some growth, growth is not the first priority, maintaining Capital is the first priority followed by growth. Remember, we don’t want to speculate and “chase” higher returns with Fixed Income (thus increasing volatility) , that’s the job of the Equities portion, which should be spread out globally.
A Hypothetical that has allocated 50% to Fixed Income and 50% to Equities has reduced its volatility (Risk) by reducing the exposure to the Equities Market; and should not expect to participate in the full downturn of the market when compared to having 100% of one’s portfolio in the Equities Market. The other side of that coin is, when the Equities markets grow, you cannot expect to benefit fully (meaning 100% of the growth) as you have sheltered half of your portfolio from equities.
Stay Involved With Your Portfolio
Education- Coaching, is a key component to the growth and success of your portfolio, and with it, your financial dreams and aspirations.
Last month’s Coaching Session- “Mind Over Money”, was so impactful, many in attendance wished they had their friend or family member. Because this is such a helpful, relevant class, I am teaching it again this month.
Please mark your calendar and make every effort to attend, Thursday August 22, 6:30PM at The Hampton Inn in Lancaster.
R.S.V.P is required for attendance. For Clients and prospective clients only- no Agents or Licensed Advisers or Brokers.
Call 661-942-2141 by Aug 14, 2013 to reserve a seat