Portfolio Diversifiers

I assume that all investors understand the value of diversification. It is all about developing a long-term portfolio strategy that will deliver performance within a tolerable level of risk.

Bonds are typically used as a portfolio diversifier. The fixed rate of interest delivers critical cash flow to the portfolio to offset the principal risk associated with equities. However, that fixed payout can cause fluctuations in the bonds’ price particularly in a rising rate cycle. When rates rise, the value of the bond declines and the longer the term to maturity the greater the impact that has on the price of the bond. In the current rising rate environment, bonds may be the highest risk asset in the portfolio.

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