5. Go beyond traditional stocks and bonds. Investors could incorporate alternative strategies that can help broaden their diversification, protect against rising rates, and contribute to growth. (Remember, however, that diversification does not ensure profits or protect against loss.)
Diversifying with alternatives means adding new asset classes such as physical real estate and infrastructure investments. You also may want to consider new strategies such as long/short approaches that can be employed with both stocks and bonds to mitigate volatility, seek out returns and contribute to diversification. While the risks of long/short strategies include the possibility of losses larger than invested capital, we believe they can offer a powerful differentiated source of return and the potential for more consistent results over time.
To learn more about what might occur in the months ahead and how to capitalize on some potential opportunities, check out the spring update to our 2014 Outlook – The List: What to Know, What to Do.
Sources: BlackRock research
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.
There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to federal or state income taxes or the Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets, in concentrations of single countries or smaller capital markets.