Understanding Investing

Prepare for Economic Changes with a Broader Allocation

Learn how a diversified portfolio can be prepared for a number of economic scenarios.

A portfolio mix that combines both traditional and nontraditional asset classes – such as TIPS and commodities – may be better positioned for a number of potential economic and inflationary scenarios.

What this chart shows
Stocks, bonds and cash, which form the core of many diversified portfolios, generally add value in some economic scenarios. In higher inflationary environments, assets such as emerging market securities, commodities and Treasury Inflation-Protected Securities (TIPS) may perform better.

What it means for investors
Rounding out a core portfolio with nontraditional and real (inflation-hedging) assets can help investors participate in a broader range of economic environments while also managing volatility, which is particularly important in uncertain economic times.

economic changes chart


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A word about risk: All investments are subject to risk, whether it is the risk of loss or the risk of not being able to keep pace with the cost of living. Fixed income investments, including inflation-hedging bonds, may decline in value if interest rates rise. High yield bonds typically have a lower credit rating than other bonds. Lower-rated bonds generally involve a greater risk to principal than higher-rated bonds. Equities can decline in value based on factors related to the stock-issuing company, its industry or market factors unrelated to the company or its industry. Investing in non-U.S. securities entails additional risks, including political and economic risk and the risk ofcurrency fluctuations; these risks may be enhanced in emerging markets. Commodities are volatile investments and should form only a small part of a diversified portfolio. Commodities may not be suitable for all investors. Diversification does not ensure against loss.

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