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Rethinking Asset Allocation

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The classic approach to asset allocation featured a trio of stocks, bonds and cash. That provided enough diversification in less complex economic times. Today, global financial markets have become more connected. Now that basic “trio” might not be enough, because those asset classes now move in tandem and sudden market shocks are more common. The stock and bond returns of old might not be as high in the future.

So how do you cope with these new market realities? You need a more sophisticated asset allocation strategy—one more akin to an orchestra than to a trio. You want a wide variety of instruments that tend to perform differently, so even if one asset class underperforms, another may be going up.

Each asset class has a specific role in your portfolio. U.S. and international stocks offer potential long-term growth, while bonds provide income and dividend-paying stocks offer potential growth and income. Cash provides stability, while energy, industrial metals, real estate investment trusts and commodities may hedge against future inflation.

Put it all together, and you have a more sophisticated arrangement than the simple stock-bond-cash composition of old.

Do you know how your portfolio is set up? It may be time to update your asset allocation. Call a Financial Consultant or 866-610-4013 to learn more about our modern approach to asset allocation..

Important Disclosures

Any opinions expressed herein are subject to change without notice. Data from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

Investing in REITs may pose additional risks such as real estate industry risk, interest rate risk and liquidity risk.

International investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. 

Dividend stocks may reduce or stop paying dividends, affecting their ability to generate income.

Commodity-related products, including futures, carry a high level of risk and are not suitable for all investors. 

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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