FINANCIALLY HIT | The possibility that inflation will linger is real, so investors should focus on managing risk to their portfolios by reviewing diversification.
Recency bias blinds many to the fact that U.S. large cap stocks don’t always produce the best returns.
Here are five ways to make sure your portfolio is well positioned for growth.
The first half of 2021 was very different than the volatile first six months of 2020. To that point, the Standard & Poor’s 500 Index returned 15% in the first half of this year — healthy growth in just about any full year.
Yet, with the potential for inflation to jam the gears of growth — fueled by trillions of dollars in past and potentially future stimulus spending — there are concerns about how investors should adjust their portfolios for the second half of 2021.
Now is the time to focus on managing risk by reviewing what many investors appear to be ignoring: diversification. To be sure, there are reasons to believe that diversified portfolios can do well, even with the uncertainty of inflation and rising interest rates.
Admittedly, there is a downside to diversification, which is if stocks continue to post record gains, you will probably make less money. However, some exposure to a mix of assets such as non-U.S. dollar denominated stocks, value stocks, corporate bonds and foreign bonds could be very beneficial if something eventually goes wrong.
Despite the stock market’s historic run over the past couple of years, I often remind clients that U.S. large cap stocks don’t always produce the best returns. For example, for the 15-year period from 2000 through 2014, bonds actually outperformed U.S. large cap stocks.
Almost no one I speak with thinks this could possibly be true, despite most actually having experienced it. Recency bias, or the behavioral trait of extrapolating what happened in the short-term as tough it will occur into perpetuity, is common when it comes to investing.
As we enter the second half of the year, here are five ways to make sure your portfolio is diversified, positioning it for growth while hedging against a possible downturn:
1. Invest in underperforming market segments: Consider investin
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