Bond Market

Checking the List Twice to Make Allocation Nice

  • 12.09.19
  • Markets & Investing
  • Commentary


What do we mean by allocation? Think of it like your household where it is quite obvious how different assets serve different purposes. Equity allocated to your house not only provides shelter, but it provides intrinsic value for memories and traditions. It also is anticipated to generate wealth through appreciation over time. Money allocated to your car, which depreciates at the moment of purchase, provides a means to an end by delivering a service of transportation to your job, place of worship, social engagements, etc. Most of us don’t go with just one or the other because they support the bigger picture each plays in their role in our daily life.

Think of your portfolio as groups of assets designed to provide their specific role. The transmitted message we receive sometimes leads us to believe that our portfolio plan should change with every shift in rates, political declaration or newly forecasted future “certainty.” However, various portfolio allocations, just like household money allocations, provide very different services and need to be treated very differently.

Rate shifts and pertinent news may persuade an investor to be watchful and reactive with their stocks or other growth assets. This portfolio allocation relies on appreciation as part of its total return. Fixed income allocation serves a very different role and is often not reliant upon total return benefits resulting from price appreciation. Fixed income allocation is regularly implemented to protect wealth and balance other asset allocations. The planning is seldom short term or concerned about capturing momentary market opportunities but rather is about long term planning and wealth preservation.

More volatility and/or low interest rates can influence portfolio change but the constant is often the fixed income allocation. Many fixed income allocations rely on … well, their “fixed income.” An investor who holds fixed income to maturity (barring default), will be provided the income, cash flow and return of face value, regardless of interest rate shifts, political declarations or news forecasts.

Check your portfolio list twice. Treat your growth assets and your fixed income assets as two distinct portfolio allocations so that they may each provide their intended benefits. This makes your allocation quite nice!  


