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Establish a framework for portfolio positioning - Top 6 Investment Themes for 2016

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1) Top Six Investment Themes for 2016 1 2 3 Diversification is key – selecting the right mix of assets for a portfolio is more important than the individual investments themselves. Critical steps for any successful investment strategy are establishing and adhering to a broadly diversified strategic asset allocation framework that appropriately reflects one’s desired return, risk tolerance, and investment time horizon. Higher rates may be inevitable, but it can be a positive development for both stocks and bonds. Both the Fed and the markets are projecting a gradual pace for rate hikes in the coming years. A slower, gradual tightening cycle has historically been supportive of equities. Meanwhile, higher yields translate into higher interest income on bonds, which will boost returns over time and can help buffer against lower bond prices. Despite a low-yield environment, fixed income continues to play a critical role in a well-diversified portfolio. Investors can take solace in the fact that the primary benefits of their fixed-income portfolio – protection and diversification – remain intact. Bonds remain an effective diversifier to stocks and other risk assets, providing a source of volatility reduction and stability to an investment portfolio. Moreover, municipal bonds look attractive for many investors – not only those in the highest tax brackets. 4 5 6 The backdrop for equities is positive, particularly relative to cash or high-quality bonds. While we anticipate that volatility may be more prevalent in the next few years when compared to the last few, recent economic data out of the U.S. remain supportive of equities while market valuations based on forward earnings appear reasonable. The case for international equities remains strong for investors with a long-term time horizon. The combination of attractive valuations, a supportive global economic backdrop, and the ongoing and aggressive monetary stimulus efforts from central banks around the globe paint a compelling picture for international equities and a longerterm investment opportunity for patient investors. Keep emotions at bay by maintaining a long-term focus and sticking to a plan. History has taught us that there will always be more questions than answers about the future. Instead of speculating about the unknown, investors with a wellconceived plan, discipline, and the patience to navigate through both calm and rough waters should be able to achieve their goals.