Diversification for portfolio flexibility

Many people consider investing to consist solely of buying stocks. Over the past 10 years, asset classes traditionally only accessed by large institutional investors have become available to a much wider audience. By broadening investment choices from only U.S. stocks to additional asset classes including international stocks, commodities, currencies, fixed income and even cash alternatives, you have greater flexibility in your overall portfolio when U.S. equities are not in favor.

Over the past decade, no single asset class has held the top spot for performance every year. Sometimes U.S. equities are top performing and sometimes they fall to the bottom, while commodities, fixed income or cash alternatives have found their way to the top. Just as a chef seasonally adjusts his menu based on the freshest produce available, investors should be willing to shift their portfolio focus based on what asset class is in season.

Investing in foreign securities presents risks not associated with domestic investments, such as currency fluctuations, political and economic instability, and different accounting standards. This may result in greater share price volatility. These risks are heightened in emerging markets.

Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon sale or maturity.

Investing in commodities is not suitable for all investors. Exposure to the commodities markets may subject an investor to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.

Investments with exposure to currencies involve certain risks, including credit risk, interest rate fluctuations, fluctuations in currency exchange rates, derivative investment risk and the effect of political and economic conditions.


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