Most investors know:
- Fixed income’s relative performance comes largely from term and credit.
- Bonds with lower credit quality are subject to the risk of default.
- Longer-term bonds are subject to the risk of unexpected changes in interest rates.
- Reducing credit quality and extending bond maturities increases potential returns.
- Different market types can dramatically affect the returns of a portfolio.
- Extreme and extended down-market events expose a portfolio to draw-down risk and can dramatically impact expected returns within a targeted time horizon.
Or do they?
As a record year of returns comes to an end and a new one begins, now is the time to talk about the potential impact of draw-down within a given investment horizon, and what can be done to offset any potential risk?
Know risk. Know reward.
