Selling Bonds? Try These Alternatives for a Balanced Portfolio

Remember that the benefits of diversification are that when something goes up, something else is going down. The importance is to keep the overall shape of the portfolio in balance

Dan Kemp 10 August, 2015 | 10:43AM
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Dan Kemp: We've seen huge outflows from bond funds over the last few months. So if you are one of those investors who's lost faith in bonds, the question is what should you do with your money?

Well the first thing is you could shorten the duration of your portfolio. Now put simply that just means take some of the interest rate risk out. Now many active funds will do that for you or you could simply buy short duration fund.

Secondly you could use alternative investments. So there are many hedge funds which use bonds but are less sensitive to interest rate movements and may help protect your capital. Thirdly you could reduce the overall risk of your portfolio.

One of the big mistakes that people make is to create unbalanced portfolios because they are concerned about one asset class or one type of risk.

Remember that the benefits of diversification are that when something goes up, something else is going down. The importance is to keep the overall shape of the portfolio in balance. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA