Investors have been facing a unique market environment, with both stocks and bonds underperforming, mainly thanks to spiking interest rates.
The Federal Reserve hikes rates in an effort to stem America’s rampant inflation. Now that rates are at their highest level in two decades, they’re expected to stay up there for longer. For the market, that’s a game changer.
Bond prices fell and yields rose as investors expressed their expectations of elevated interest rates. Meanwhile, stocks sold off as investors feared the prospect of a recession on the back of the rapid rate hikes, while higher rates also just meant more expensive financing for companies. For one type of portfolio, this was a double whammy.
Read more about the bond market here.
The 60-40 Strategy
According to the 60-40 investing strategy, investors should keep 60% of their portfolio in stocks and the other 40% in bonds. This straightforward strategy has long been viewed as a simple approach to proper diversification. But after losing 17% last year, question marks have arisen.
Traditionally, stocks tend to rise during periods of economic growth, and fall when the economy is uncertain. Conversely, bonds tend to rise when stocks fall since investors view them as a safer asset class. So where does it leave you when both asset classes sell off?
Even though the 60-40 portfolio has struggles, it’s important to remember one of the most important rules of investing: don’t panic. Investing always involves risks, and investing for a long-term goal involves riding the waves of the market.
Read more reporting here .
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