People are generally inclined to believe that negative outcomes are more likely than positive ones. This psychological pitfall, known as negativity bias, causes many investors to assume the worst: that when a market is rising, it will come crashing down, or that when a market is falling, it won’t ever bounce back.
Of course, sometimes a negative outlook is justified, which is why it may be wise to diversify with defensive assets, including cash investments (such as certificates of deposit and money market funds), U.S. Treasuries and even precious metals. Such investments may not appreciate as rapidly as stocks during a bull market, but they have historically outperformed during a bear market.
Defensive assets can also help your portfolio recover faster. Indeed, the Schwab Center for Financial Research found that a diversified portfolio recovered from the Great Recession 17 months faster than did an all-stock portfolio.1
Regardless of what the market is doing, the most important thing is to stick to an asset allocation that’s appropriate for your goals and time horizon. And remember: If you need help reassessing your portfolio, we’re always just an online message (log in to schwab.com/chat) or phone call away.
President & CEO
1The diversified portfolio, composed of 60% stocks and 40% bonds, was rebalanced annually. Stocks are represented by the S&P 500® Index, and bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index. Returns assume reinvestment of dividends and interest. Fees and expenses would lower returns.