Weekly Market RecapThe Federal Reserve held their June meeting this week. They reaffirmed that the US economy hit a temporary soft patch in the first quarter, but that the economy appears on a positive trajectory with improving employment and subdued inflation. The Fed said that they expect to raise rates in the second half of 2015, assuming the economy stays on its current course. In Europe, Greece continues to make headlines with speculation about a possible Euro exit and potential default at the end of June, but private negotiations continue. As we've mentioned previously, rising US interest rates may get more attention than they deserve. History shows that both stocks and bonds generally rise during periods of rising rates. It is important to remember that typically interest rates rise in response to a strong economy, and a strong economy is generally good for stocks. In addition, we have taken action over the last couple of years to reduce the overall duration of our recommended diversified bond portfolio which we expect to help preserve the principal value of your bond investments, even as rates rise. Also, a quick reminder on how bonds help your portfolio. Bonds have generally been a valuable way to manage the shorter term risks of holding equities. Often, when the stock market is weak, bonds can perform well and this is useful in smoothing the returns in your portfolio. Bonds are generally regarded as the most useful asset class for this role, and also provide a return through interest payments. Smoother returns means less volatility in your portfolio, which has shown time after time to encourage people to stick to their long-term plan. Without bonds, we believe your portfolio is more susceptible to bigger ups and downs, which can create fear and ultimately a desire to changes one's strategy - usually at the wrong time. Additionally, bonds have historically been less risky than stocks. US Treasuries have only seen an annual fall of more than 10% only once since 1928; in that year they fell just under 12%. As we mentioned last week, stocks have offered greater historical returns, but can move up and down significantly over fairly short periods. In contrast, bond returns have historically been lower, but more stable. Years of negative returns for bonds are infrequent. Finally, remember that our recommended fixed income exposure is well-diversified. US bonds are part of our fixed income portfolio, but the funds we use are diversified across thousands of bonds with different durations and credit risks. In addition, inflation protected securities and international debt are also a large part of our recommended fixed income exposure. See our recent piece in Forbes for more information on how bonds help your portfolio: Disclaimer: Your Portfolio Summary
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Sunday, June 21, 2015
Your Weekly Update - Fed Sees US Economy On Track
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