With rising tensions around tariffs, geopolitical uncertainties, and a potential slowdown in the global economy, now may be an ideal time for Canadian investors to reassess their portfolios and consider rebalancing their investments.
Why Rebalance?
Rebalancing is the process of adjusting your portfolio to bring it back into alignment with your intended allocations to stocks and bonds. By rebalancing your portfolio – reducing equity investments and increasing fixed income, in this scenario – you can return it to your original, target asset allocations. This is, in part, based on your level of risk tolerance.
Asset allocation is one of the most critical components of a well-rounded investment strategy. Over time, certain investments will naturally perform better than others, resulting in a portfolio that may no longer reflect your original risk tolerance or investment goals. This is especially possible after periods of strong market performance. As a result, your portfolio might be skewed toward stocks, leaving it vulnerable to sharp market corrections or downturns.
Fixed Income Typically Less Volatile
While stocks may offer higher long-term growth potential, they also come with the risk of sharp declines, especially when market conditions turn negative. Fixed income assets, such as bonds, on the other hand, are generally more predictable, providing steady interest payments and principal repayment at maturity, making them a potentially safer choice during times of market uncertainty.
Diversification Through a Global Portfolio
One of the main reasons for considering a shift toward fixed income is the concept of diversification. A diversified portfolio (one that includes a mixture of asset classes, including stocks, bonds, and alternative investments) can help reduce risk.
Investors may want to look beyond domestic bonds and consider global fixed income options to increase diversification. By doing so, they can gain exposure to different markets, economies, and interest rate environments, all of which can help cushion against shocks to the global market.
For Canadian investors considering global fixed income, Capital Group World Bond Select ETF™ (Canada) provides an option for global bond exposure. This ETF seeks to diversify fixed income holdings through investments in a range of bonds from developed and emerging markets.