Considering Core Bonds amid Stock Volatility

Why Recent Market Events May Call for a Portfolio Review

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Key Insights

  • Stock-market volatility may cause some investors to question if they have enough "ballast" in their portfolios.
  • One important measure of ballast—an expected counter against a more volatile stock market—is duration, which measures the sensitivity of a portfolio to interest rate changes.
  • Interest rates that have risen in recent years may eventually fall, at which point, the higher the duration, the more bond prices could be expected to rise.
  • Many investors appear to be under-invested in duration. In a rate reduction environment, there may be greater reinvestment risk for investors at the short end of the yield curve.
  • Investors have increased their cash holdings amounting to a 63% increase in asset flows to money market accounts since 2017.
  • History suggests there could be benefits to investing in bonds ahead of a turn lower for rates.

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