Fixed Income
- Topics:
- Commercial Lending
- Tags:
- Dimensional Fund Advisors,
- Equity,
- Finance,
- Financial Services,
- Fixed Income,
- Investment,
- Volatility
- Source:
- Dimensional Fund Advisors
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Overview: Managers of investment portfolios are concerned about risk, return, and the amount of risk required to achieve a specific return. In the pursuit of returns, history and theory confirm that the expected return on equities exceeds the expected return on fixed income. Managers looking for superior inflation-adjusted returns begin with equities. The first line of defense in risk reduction is diversification. Managers reduce the risk of equity portfolios by diversifying. They spread the risk among domestic and foreign equities, large companies and small companies, growth stocks and value stocks, etc. Still, even a highly diversified equity portfolio may have a higher volatility than is desired by the investor. At this point, a less volatile asset class—fixed income—is introduced into the portfolio. The primary reason for adding fixed income is volatility reduction.
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Format: HTML | Date: Jan 2003 | Pages: 1
