What Happens Next: Building the Perfect Portfolio

Many investors have focused on a 60-40 portfolio. That provides a mix of stocks and bonds. This method generally works well, as bonds tend to be steady payers. And they tend to move opposite stocks.

This year has been a major exception. Rapidly-rising interest rates have taken a toll on bonds. And as bond prices have dropped, yields have risen. That’s made bonds competitive with stocks, as higher yields and lower risk have enticed investors looking for safety from the bear market.

It’s clear investors need to design a better portfolio to deal with years where both stocks and bonds drop. That will help better balance risk and reward, while also increasing diversification.

There’s no single perfect portfolio. Individual risk assessments and needs will ensure that. However, there are ways to better improve one’s portfolio.

One way could be with the use of options. Those could be used to better manage risks. Tools like call options can play to a market upside with less capital than buying a stock. Or selling covered calls can be used to generate income off of a stock position.

Overall, asset returns will vary. Thinking about the positions in one’s portfolio, their overall volatility, and position sizing are key factors for reducing risk. They can go a long way towards perfecting a portfolio.

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