Bradshaw made a comparative case for diversification by explaining that in the U.S., most individuals have integrated non-traditional asset classes to hedge: "One does not necessarily need to be a sophisticated investor to understand that a basket of diverse investments enhances
portfolio protection." He went on to add, "In the U.S., investors have been victims of volatile markets and have learned the importance of 'not keeping all your eggs in one basket'." In the long run, this will help an investor generate stronger, stable returns as opposed to temporary short-term gains.
A study released this month by Lincoln Financial finds many savers are concerned about
portfolio protection, especially as they approach retirement.
Costs fell enough that fee-only financial planners who traditionally had shunned these loans started to recommend them to wealthier clients as a
portfolio protection strategy.
Today, however, the environment is completely different and the benefits of holding bonds as a
portfolio protection mechanism are simply not worth it, considering the risks.
We can't predict the future, but there are options for the tactical thinkers and longer-term solutions for
portfolio protection out there on both sides of the trade.
Woodall further opined in the report that this approach of
portfolio protection is vastly different from the Modern Portfolio Theory approach of using bonds to offset stocks during times of sudden market changes but is definitely proving to be more effective in recent times.
Portfolio protection becomes less "important" and that performance drag caused by diversifiers in an up market becomes a source of frustration and impatience for clients.
"It's a massive drop, and investors are indeed lowering their
portfolio protection, but the expiry of options and futures contracts tomorrow is also mechanically fuelling the drop," a Paris-based derivatives trader said.
For investors who are in the market and nervous, but don't want to close their positions, the cost of
portfolio protection is relatively low.
The key is having
portfolio protection in place now so that it won't devastate your fixed-income holdings and reduce your future quality of life.
The concept of
portfolio protection can be combined with liability-driven investment strategies meant to target the other source of pain being inflicted upon pension plan portfolios: low and stagnant interest rates.
"Both our consumer research and the index have shown the value in securing adequate
portfolio protection. Without this, retirees can expect to feel the pinch."
