| Investment Strategies in Uncertain Times |
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After years of relative tranquility, the financial markets have not been for the faint of heart during the past year. Market gyrations can unnerve even the most seasoned investor. Fortunately, there are a number of time-tested investment strategies that can help you remain focused on your long-term financial goals.
Ongoing weakness in housing prices and the fallout from the subprime mortgage market have negatively impacted the economy and the financial markets. The media has done its part to fuel the flames, with a seemingly endless stream of stories regarding these trying times. During these periods, it's helpful to take a step back and look at the big picture to determine what's driving the markets and what could be in store going forward. It's also important to work closely with your financial advisor to ensure that your investment portfolio is well positioned and that you don't make ill-advised decisions that could negatively impact your ultimate financial goals.
Periods of Market Volatility are Normal
The market volatility we have experienced over the past year is unsettling, but far from unusual. Stock market corrections—declines of at least 10%—typically occur once every 1.1 years. And bear markets—declines of 20% or more—generally happen about every three years1. In contrast, the current bear market is the first we've experience since 2002—more than six years ago.
Time-Tested Investment Strategies
While no two investors are alike, there are a number of strategies that have proven the test of time and are valuable components of a sound investment strategy.
Diversify Your Portfolio
The old adage about "putting all of your eggs in one basket" is more than a tired cliché—it's a recipe for disaster when it comes to investing. Therefore, you should diversify your portfolio by allocating your assets among a wide variety of stocks and bonds. In doing so, you may be able to temper the risk of holding a more concentrated portfolio. The value of diversification is shown in the chart below. While a hypothetical portfolio consisting of mostly stocks generated the best performance, it also exposed investors to the most risk (as measured by standard deviation). In contrast, a portfolio that held a more balanced mix of stocks and bonds generated solid returns with relatively less risk.
Don't Try to Outsmart the Market
Market performance can move in fits and starts. Because of this, missing just a few days of strong returns can negatively impact your investment results. While it may be tempting to try and "time the market" during periods of market volatility, history has shown that taking a longer-term approach and remaining invested is a better way to capitalize on the market's upside potential.
Regularly Rebalance Your Portfolio
Because the returns of the investments in your portfolio will vary over time, the percentages that you originally invested in stocks and bonds will shift—sometimes dramatically—over time. As a result, you may become overexposed to more risky investments or underexposed to investments that can help you achieve your long-term goals. This is demonstrated in the charts below.
Instant Diversification with MainStay Asset Allocation Funds
Working with your financial advisor, you can develop a personalized investment strategy that is appropriate given your goals, time horizon, and risk tolerance. Your financial advisor can also help you to remain focused on the big picture and help you avoid knee-jerk reactions that may derail your opportunities for investment success.
In reviewing your needs, your financial advisor may determine that a MainStay Asset Allocation Fund is a suitable core holding for your portfolio. Each of these Funds provides you with instant access to several carefully selected underlying MainStay Funds. The MainStay Asset Allocation Funds are monitored on a daily basis by our portfolio management team and their portfolios are regularly rebalanced.
To learn more about the Funds, speak with your financial advisor. You can also call us at 800-MAINSTAY (624-6782) or visit us online at mainstayinvestments.com.
Before You Invest
Fund performance depends on the advisor's skill in determining the asset-class allocations and the mix of underlying MainStay Funds, as well as the performance of those underlying Funds. The underlying Funds' performance may be lower than the performance of the asset class which they were selected to represent. The Fund is indirectly subject to the investment risks of each underlying Fund held. Principal risks of the underlying Funds are described below. The Fund may invest more than 25% of its assets in one underlying Fund, which may significantly affect net asset value of the Fund.
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Stocks and bonds can decline due to adverse issuer, market, regulatory, or economic developments. High-yield securities carry higher risks and some of the Fund's investments have speculative characteristics and present a greater risk of loss than higher-quality debt securities. These securities can also be subject to greater price volatility. |
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There are additional risks associated with investing in mid-cap and small-cap securities. Stocks of mid-cap companies may be more volatile and less liquid than the securities of larger companies. Stocks of small companies may be subject to higher price volatility, significantly lower trading volume, and greater spreads between bid and ask prices, than stocks of larger companies. Furthermore, small-cap companies may be more vulnerable to adverse business or market developments and may have more limited product lines than large-capitalization stocks. |
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Foreign securities may be subject to greater risk than domestic investing. These may include securities markets that are less efficient, less liquid, and more volatile than those in the United States, as well as foreign currency fluctuations and different governmental regulatory concerns. |
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When interest rates rise, the prices of fixed-income securities in the underlying Funds' portfolios will generally fall. Conversely, when interest rates fall, the prices of fixed-income securities in the underlying Funds' portfolios will generally rise. |
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Floating rate funds are generally considered to have speculative characteristics that involve default risk of principal and interest, collateral impairment, nondiversification, borrower industry concentration, and limited liquidity. |
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An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. Although the fund seeks to maintain a value of $1.00 per share, it is possible to lose money. Before making an investment in the Fund, you should consider all the risks associated with it. |
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