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Portfolio consultants Mark Cintolo and Kevin McCullough discuss the benefits of using a goals-based approach to align the fixed income allocation with investor objectives.
  • Investors have a variety of reasons for including fixed income in their portfolios. The most common are liquidity, diversification, and income.
  • Investors who value liquidity likely have a higher level of loss aversion and should avoid strategies with lockups or too much risk.
  • Someone who wants diversification is probably trying to smooth out volatility from another portion of their portfolio, so equity risk offset becomes the focus. That might mean holding more duration.
  • Investors focused on generating income might be more willing to stretch for absolute return.
  • There is also an interplay between risk tolerance and time horizon.
  • We’ve seen examples where a fixed income strategy declines, but then comes roaring back in a subsequent recovery period. But that recovery would have been lost on an investor with very low risk tolerance or a short time horizon.
  • Now that yields are higher, investors may be able to replace some of the equity risk in portfolios with fixed income, which could potentially reduce the overall risk profile without compromising too much on expected long-term returns.
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This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary. The views and opinions expressed may change based on market and other conditions.