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The Importance of Diversification

The Importance of Diversification

Posted By Lineweaver Financial Group
December 27, 2018 Category: Diversification, Portfolio, Investments, Stocks, Bonds

Many people think their investments are diversified, but when you dig deeper on any given portfolio, we find that’s often not the case.   In order to diversify your portfolio, you want to choose a variety of assets – stocks, bonds, cash and others – but you also want to choose ones whose returns haven’t all historically moved in the same direction, and, ideally, assets whose returns typically move in opposite directions to hold up your portfolio hold up better in down markets. That way, even if a portion of your portfolio is declining, the rest of your portfolio, hopefully, is growing, and you can potentially offset some of the impact of poor performance on your overall portfolio.   Another important aspect of building a well-diversified portfolio is that you try to stay diversified within each type of investment. For example, in terms of your individual stock holdings, beware of overconcentration in a single stock. We usually advise our clients that a single security shouldn’t account for more than 5% of your stock portfolio, unless it’s with the company you work for, and even then, you should limit it to 25%. It’s also smart to diversify across stock holdings by market capitalization (including small, medium, and large caps), sector, and geography.     Another important consideration is stock overlap or duplication between funds. This often leads investors to believe they are diversified, when in fact th

5 Ways to Benefit from Rising Interest Rates

5 Ways to Benefit from Rising Interest Rates

Posted By Lineweaver Financial Group
August 09, 2018 Category: Bonds, Rising Interest Rates, Finance

After the most recent interest rate increase in June, the Federal Reserve has signaled that it is likely to continue raising interest rates this year, possibly even as often as once per quarter. In fact, fear that interest rates may rise faster than previously predicted has caused some volatility in the markets. Bond investors have been concerned about this for years, but this time it looks like it’s going to happen. Warren Buffet said, in his latest shareholder letter, that “Often, high-grade bonds in an investment portfolio increase its risk.” That can be true, but then, we don’t all have Warren Buffet’s net worth to fall back on! That may have you wondering – how can I take advantage of rising interest rates? And, generally speaking, bond yields go down as interest rates increase. But remember, while bonds may decline in value, their moves tend to be smaller compared to other securities. Many investors are flooding into U.S. Treasury bonds, making the so-called flight to quality, because right now, the U.S. looks better than other economies worldwide. This means that medium and longer-term bonds – whose rates are often more influenced by investor expectations than anything else – are likely to be most affected. But, there are many strategies you can use to manage your bond portfolio in a rising interest rate environment. For Treasury inflation-protected securities, or TIPS, the Treasury Department uses the Consumer

Don't Let Your Bonds Suffer as Interest Rates Rise

Dont Let Your Bonds Suffer as Interest Rates Rise

Posted By Lineweaver Financial Group
April 21, 2017 Category: Bonds, Rising Interest Rates, Interest Rates, Bonds

After the most recent interest rate increase in mid-Mach, The Federal Reserve has signaled that it is likely to continue raising interest rates both this year and next. Bond investors have been concerned about this for years, but this time it looks like it’s going to happen. That may have you wondering – how do I manage my bond portfolio in the face of rising interest rates? Generally speaking, bond yields go down as interest rates increase. But remember, while bonds may decline in value, their moves tend to be smaller compared to other securities. Many investors are flooding into U.S. Treasury bonds, making the so-called flight to quality, because right now, the U.S. looks better than other economies worldwide. This means that medium and longer-term bonds – whose rates are often more influenced by investor expectations than anything else – are likely to be most affected. But, there are many strategies you can use to manage your bond portfolio in a rising interest rate environment. 1.      For Treasury inflation-protected securities, or TIPS, the Treasury Department uses the Consumer Price Index to adjust the principal for inflation (or deflation) twice a year. At maturity, the investor gets either the inflation-adjusted principal or the original principal, whichever is higher. 2.      Another second smart strategy is to invest in single corporate bonds. You can structure this based on incom

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