Tags: Balanced | funds | protection | risk

WSJ's Wasik: Consider Balanced Funds as Protection from Risk

By    |   Sunday, 26 October 2014 05:22 PM

The recent 10 percent drop in the S&P 500 index, which was accompanied by a jump in volatility, has many investors looking to play defense.

The Wall Street Journal's John Wasik looks at three approaches in the mutual fund/exchange-traded fund world to dealing with the turmoil.

First, investors can choose a fund that rises in value along with volatility or one that rises as stocks fall. But if volatility falls, or stocks rise, these funds won't perform well.

"You don’t just plunk them in a portfolio for the long term," Eric Dutram, an ETF analyst at Zacks Investments, told The Journal.

The timing of your move into and out of these assets will play a major role in determining your success. And we all know that market-timing is often a fool's errand.

Then there's a third option: a balanced fund, which includes both stocks and bonds. "For investors who just want to smooth out a bumpy ride, [that] may be the better bet," Wasik writes.

While you may be trying to reduce your investment risk, major money managers including Pimco have built up massive positions of high-risk fixed-income securities, such as junk bonds, and experts say that puts the financial system at risk, The New York Times reports.

That's because these securities are largely concentrated at a few firms. And if some problem makes all these players try to exit the market simultaneously, credit markets could freeze.

"Credit-focused mutual funds have seen massive inflows and have become the largest holders of corporate and foreign bonds," José Viñals, head of the IMF’s financial-markets division, said at a recent news conference, according to The Times.

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Recent stock-market volatility has many investors looking to play defense. The Wall Street Journal's John Wasik looks at three approaches in mutual funds and exchange-traded funds.
Balanced, funds, protection, risk
Sunday, 26 October 2014 05:22 PM
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