It could be argued that even the most carefully diversified portfolios could not withstand the wrath of the 2008-2009 bear market. That financial crisis had a profound impact on nearly every asset class when just less than a decade before, those investors who were diversified were well-positioned to sustain the bursting of the dot com bubble.
There will always be disagreement over whether or not to diversify; nevertheless, a suitable strategic balance of stocks and bonds is standard practice for portfolios that are tailored to help investors in the pursuit of their long-term goals.
Investors are always faced with the temptation to abandon their long-term strategies depending on what they believe the future might bring. Will continued economic growth in the US set the pace for global growth? What about Asia? Will the economy continue to be a challenge in Europe or is a turnaround in the works?
Not knowing what the future holds may create anxiety. However, today’s investors may do well to take a more global approach by having a portfolio with equities and securities from international markets. At best, such a portfolio may benefit from significant developments in capital markets around the world that present worthwhile investment opportunities over the long run.
And speaking of the long run, despite the impact higher interest rates can have on bond prices, bonds should always have their place in a carefully diversified portfolio to help mitigate risk, while preserving capital. Also fixed income investors should note that higher rates over the long term may be provide you with the proceeds once bonds mature to reinvest in higher coupon bonds to help withstand the effect of price declines