Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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ETFs for the long game
ETFs
iShares
Summary: No matter where you are in life, you need to invest in the long game. Your long-term financial future depends on maximizing returns and minimizing risks. One way to achieve that is through diversification. This is where ETFs may play a starring role. The sheer range of ETFs available today gives investors numerous ways to diversify.
Diversification and asset allocation may not fully protect you from market risk.
How ETFs (Exchange Traded Funds) can help you diversify your portfolio and achieve your long-term goals
The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
What you’ll discover?
- How ETFs can diversify your portfolio and help you achieve your long-term goals
- What to consider when choosing an ETF for a long-term investment
- How ETFs can complement your existing long-term investment portfolio
Take control of your future
It’s a common misconception that you need a ton of money to start investing. Or that you can’t start investing when you are young.
Just like you don’t need a diploma in finance to take control of your finances, age and salary shouldn’t stop you from investing and playing the long game.
Invest in the future
Investing now with ETFs may save you a lot in future. ETFs are generally lower in cost than mutual funds fees tend to be lower than mutual fund fees mostly because unlike most mutual funds, most ETFs are passively managed. One of the costs with ETFs is the transaction fee – the cost of buying the ETF. In the long run, these savings can make a huge difference.
Consider your changing goals over time
When planning for the future, you need to map out an investment plan that works for different stages of your life. Choose an investment strategy with an appropriate risk and time horizon to meet these goals.
For example, a typical retirement investment plan may start out as 70% equities, 20% bonds, and 10% “other”, which reflects your higher appetite for risk when you’re young.
As you get closer to retirement, you want to lower risk, so your portfolio may be 70% bonds, about 20% in equities, and up to 10% in liquidity funds (cash and cash equivalent instruments e.g., commercial papers, certificates of deposits or treasury notes). This means your portfolio is potentially not exposed to a sudden shock like a stock market crash just before you want to cash in your retirement fund (2).
Balancing your portfolio at all stages
Success depends on your ability to balance your portfolio in a way that may maximizes potential return and matches your risk appetite at each life stage.
The stock market can be volatile in the short term. It can decline substantially in a single day, creating fear amongst investors. But if you stay calm, you’ll find that the likelihood of a positive return grows higher the longer you stay invested.
Simplicity:
With just a few ETFs, investors can build a broadly diversified portfolio across major asset classes.
Already have a long-term plan? Why not make it better…
We always push ourselves to do better – why would we not push our money to do more?
Regardless of whether you have an existing long-term investment strategy in place, ETFs are a great way to build out your existing portfolio.
How ETFs can potentially help meet your investment goals
Investment strategies are just as unique as investment goals. ETFs are a flexible investment tools, with have many different uses. With one holding you get exposure to a whole range of investments. From a single country such as the United States, to global bonds and even commodities like gold there’s usually an ETF for whatever you're looking for.
Mining shares typically experience above average volatility when compared to other investments. Trends which occur within the general equity market may not be mirrored within mining securities.
Build a stronger core:
ETFs at the core can help simplify building a diversified, low cost and tax efficient portfolio.
Seek income:
ETFs can help generate income through bonds, dividend-paying stocks and preferred stocks.
Two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to repay the principal and make interest payments.
Prepare for market turbulence:
Minimum volatility ETFs are designed to help reduce risk and keep you invested.
Minimum volatility ETFs should not be considered low risk in absolute terms and may not be suitable for cautious investors.
Invest internationally:
ETFs offer access to virtually all investable markets.
Act on opportunities:
ETFs offer the same trading flexibility as stocks, with added diversification.
The takeaway
Like any commitment, starting a long-term savings project can be overwhelming. Speak to a financial advisor to help you map out your goals now. As your goals change, your investment strategy should too.
- It’s never too early to think about investing for the long term
- Diversification and optimizing the reward-risk equation is critical to a successful long game
- ETFs are flexible investment tools with many different uses and offer many ways to meet your investment goals
Disclaimer
This document is marketing material: Before investing, please read the Prospectus and the PRIIPs KID available on www.ishares.com/it, which contain a summary of investors’ rights.
Risk Warnings
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
Regulatory Information
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This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. Refer to BIMAL’s Financial Services Guide on its website for more information. This material is not a financial product recommendation or an offer or solicitation with respect to the purchase or sale of any financial product in any jurisdiction.
Information provided is for illustrative and informational purposes and is subject to change. It has not been approved by any regulator.
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