As investors push further into the stock market in order to improve dividend yields, portfolio safety becomes a concern. Otherwise properly diversified portfolios are becoming more heavily weighted in equities at a time when signs of risk are becoming more pronounced. The Fed futures market is saying there's about a 55% chance of a rate hike by the end of the year. Policies in Washington could begin looking very different depending on who wins the November election. Equity valuations are getting stretched. The impact of Brexit still remains to be seen. There are a lot of variables in play.
Limiting and reducing overall portfolio risk should be a primary concern for investors right now. Bonds are the customary tool for this purpose but it looks like we may finally be at the tail end of the biggest bull market in history for fixed income. Bonds will help diversify away risk but it may come at the expense of total return, a trade-off some investors may not be willing to make. Perhaps the next best option? Invest overseas.
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