A question among most investors today is, “How can I better diversify my portfolio for yield while focusing on capital preservation?” Most money managers will suggest bonds; traditionally, bonds have been a great source for yield because they have a lower risk of default. However, bonds are not as attractive to investors today as they once were since yields are extremely low in the U.S. According to Aberdeen Standard, a traditional balanced investment portfolio of equities and fixed income would be forecasted to deliver a return of around 3% versus an average of 7% over the last 20 years. The simple answer of the question above of how to diversify a portfolio is to get innovative.
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Fixed-income security has been a good way historically to diversify a portfolio and lower exposure to stock market volatility, but 2018 may prove to be the year to exercise caution and rethink one’s investment strategies.
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