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Equity And Bonds report

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  • 1. RES-4272A-U AUG 2009 U K S t R A t e g y R e p o R t DIVeRSIFyINg eQUItIeS WItH BoNDS The key to riding out market downturns lies in a balanced, well-diversified portfolio of quality investments. It’s your overall mix of investments (asset allocation) that ultimately can determine how well your portfolio performs. To complement the equities in your portfolio, consider owning bonds. Bonds can offer several benefits, which include: You may be concerned that owning some bonds along ❚❚ Providing a steady stream of income payments with shares may lower your returns over time. Although past performance is not necessarily a guide to future ❚❚ Protecting investment principal (the face amount performance, the following chart shows that in the past of the bond) there was not a significant reduction in the return ❚❚ Reducing risk within your portfolio achieved in the long run. Bonds are an important part of portfolio diversification because the income they provide can serve to anchor Long-term Returns your portfolio in stormy markets. However, if you don’t All Equities 65/35 Mix of need the income, you may still benefit from bonds. Year Portfolio1 Equities and Bonds1 Although equities provide better long-term returns than 1970s 11.5% 10.3% bonds, bonds can help reduce risk because they can 1980s 23.4% 20.5% provide better price stability for your portfolio. So whilst 1990s 15.0% 14.4% a dip in share prices shouldn’t cause you to abandon equities, it should help to remind you that savvy investors 2000s * -1.3% 1.1% own bonds too. 1999-2008 1.2% 2.5% *As of 31 December 2008 How Diversification Helps in a Declining Share Market All Equities 65/35 Mix of During uncertain markets, it can be easy to become Year Portfolio1 Equities and Bonds1 preoccupied and lose site of your long-term financial goals. 2000 –4.9% –0.5% To help ensure your portfolio has an appropriate mix of shares and bonds that matches your risk preferences, 2001 –12.9% –8.0% schedule an appointment with your Edward Jones 2002 –22.3% –10.9% financial adviser. 2008 -31.1% -16.0% In the table above, share and bond prices generally didn’t 1 Source: ABN-AMRO Global Investment Returns Yearbook. move in tandem. In other words, when share prices Equities based on the FTSE All-Share Index and bonds based on the ABN-AMRO/ declined, bond prices might have risen, and vice versa. London Business School Long Government Bond Index. This relationship helps your investments achieve more Past performance is not necessarily a guide to future performance. Edward Jones Limited is authorised and regulated by the Financial Services Authority stable returns. As a result, owning bonds during a stock and is a member of the London Stock Exchange. Registered in England and Wales market downturn can help reduce your losses. No. 3403976. 11 Westferry Circus, Canary Wharf, London, E14 4HH. © 2009. Mario D. De Rose, CFA Fixed Income Strategist www.edwardjones.com

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