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Optimizing Your Portfolio Allocation
Show your clients how an asset allocation strategy can help protect them against markets ups and downs.
There’s no single long-term investment that will both safeguard your portfolio from market volatility and provide the growth potential needed to achieve your goals. Instead, investors typically rely on a healthy mix of diversified investments, or an asset allocation strategy.
You Shouldn’t Have to Choose Between a Strong Defense and Strong Offense
Bonds are prized for their durability and predictability, as they tend to generate less return volatility than stocks, long term. On the other hand, stocks have the potential to generate much higher absolute returns than bonds, generally speaking. The charts on this page show that, historically, a portfolio that has a mix of both stocks and bonds generated higher returns than an all-bond or cash portfolio with less risk (as measured by volatility) than an all-stock portfolio. Working with a financial professional to confirm the asset allocation that’s right for you, based on your time horizon and risk tolerance, can help you achieve the right balance between capital protection and growth.
ASSET ALLOCATION HAS A BIG IMPACT ON PERFORMANCE
30 Years Ended December 31, 2022
PORTFOLIO PERFORMANCE
30 Years Ended December 31, 2022
These hypothetical portfolios combine stocks and bonds to represent a range of potential risk/reward profiles. For each allocation model, historical data are shown to represent how the portfolios would have fared in the past. Figures include changes in principal value and reinvested dividends and assume the portfolios are rebalanced monthly. It is not possible to invest directly in an index. Past performance cannot guarantee future results.
Charts are shown for illustrative purposes only and do not represent the performance of any specific security or T. Rowe Price product.
Sources: T. Rowe Price, created with Zephyr StyleADVISOR; S&P; Bloomberg Index Ltd.; and FTSE. See Additional Disclosures. Stocks, S&P 500 Index; bonds, Bloomberg U.S. Aggregate Bond Index; cash, FTSE 3-Month U.S. Treasury Bill.
What Is Diversification?
Diversification involves spreading investments across securities or asset classes to reduce dependence on a single category. This can help optimize investment performance in volatile markets.
Charting a Steady Course
The table below shows how multiple stock and bond indexes performed over 10 years. While it’s tempting to chase categories with double-digit gains, note that many of those same categories experienced double-digit losses in other years. The orange boxes show how a diversified portfolio with a 60% stock/40% bond allocation performed each year over the 10‑year period. The diversified portfolio had only two years of negative performance and still outperformed many other sectors in those down years.
NO ONE CAN PREDICT WHICH ASSET CLASSES WILL BE IN FAVOR
Additional Disclosures:
Bloomberg — “Bloomberg®” and Bloomberg indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by T. Rowe Price. Bloomberg is not affiliated with T. Rowe Price, and Bloomberg does not approve, endorse, review, or recommend this product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to this product.
S&P — Copyright © 2022, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of any information, data or material, including ratings (“Content”) in any form is prohibited except with the prior written permission of the relevant party. Such party, its affiliates and suppliers (“Content Providers”) do not guarantee the accuracy, adequacy, completeness, timeliness or availability of any Content and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such Content. In no event shall Content Providers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of the Content. A reference to a particular investment or security, a rating or any observation concerning an investment that is part of the Content is not a recommendation to buy, sell or hold such investment or security, does not address the suitability of an investment or security and should not be relied on as investment advice.
FTSE/Russell — Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2022. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE® and Russell” are trademarks of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company that owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
MSCI — MSCI and its affiliates and third-party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast, or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.
J.P. Morgan — Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The index is used with permission. The index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. Copyright © 2021, J.P. Morgan Chase & Co. All rights reserved.
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