Volatility in the market can make profitable investing a tricky task. It is important to understand the different investment options and the associated risks. With new research challenging traditional investing fundamentals, it is more important than ever to look at which strategies are available and how they can help create a diverse, flexible portfolio.
Managing Risk When Investing for Income (Kiplinger, December 2016)
With a low interest rate environment, deciding how to incorporate bonds and high-yields investments into a portfolio can help mitigate some of the risks. Researching different types of investments and what risks are involved help investors create a more diverse portfolio. A client’s willingness to assume risk will help dictate what investments fit in that portfolio. As the market continues to change, having diversified assets helps balance the risk throughout the entire portfolio and create long-term returns.
With the volatility of today’s market, flexibility and diversification are the best ways to achieve one’s desired returns. The key is being flexible enough to shift gears as the market changes. Looking at stocks that raise their dividends can have a good payout, especially during interest rate hikes. Emerging market debt is a category that is getting a lot of attention and offers potential returns without a large increase in risk. Understanding the different strategies might be too involved for some investors. Working with a financial planner will help create a strong, sustainable portfolio.
Sustainable Investing in Fixed-Income Funds (Morningstar, December 8)
Researchers at Barclays released a study showing sustainability factors should play a role in corporate-bond portfolios as much as in equity portfolios. Between 2009 and 2016 high-ESG portfolios produced, “average annualized returns that were .29% to .42% higher than low-ESG portfolios.” Although there were some limitations to the research, considering ESG scores does not negatively affect performance and may have a positive overall effect. The author also points out green bonds, although still a small market, “can gain investors exposure via most other ESG-focused funds.”
