Portfolio Structure Can Help During Times of Uncertainty
Some of the recent geo-political headlines are undeniably jarring. During times like this, it is useful to think about the structure of ones portfolio and how it is designed to meet ones long term financial goals and parameters. For some people, high returns are essential and so they hold primarily stocks, knowing that wide fluctuations will occur at times. Others do not desire capital growth and are most interested in a steady stream of income with little volatility hence their portfolios are bond heavy. Many people are somewhere in-between (see chart of model portfolios).
Core positions are the term we use to refer to the specific investments that give portfolios their primary exposure to different asset classes. These core stock and bonds funds are expected to be held for a long period of time, delivering excellent performance and enabling portfolios to achieve their risk and return targets. Importantly, while the balance of these core positions will change over time, they are unlikely to be eliminated due to new political developments. This is because they are accomplishing the heavy lifting of portfolios that take years to accomplish. While shorter term tactical moves are an important compliment to this long term approach, reminding oneself during times of uncertainty that ones portfolio has a strong core, designed to weather the long term, can help investors stay the course needed to meet their goals.