The basic rule of thumb for asset allocation has been that you should place 60% of your investment portfolio in stocks and 40% in bonds.
According to Bank of America, inflation-adjusted 60-40 investment portfolios are on track for a negative return of 49% this year. Their worst in history is in 1920.
What should an investor do? In a conversation, BofA strategists argue that allocations to defensive stocks, inflation winners, low yield fixed income, and higher cash are all encouraged.
Consider dividend stocks on the downside. At least you''ll get regular income if you buy strong ones, and your options may hold up better than the rest of the market if stocks head south.
So far this year, the S&P 500 has dropped 19%, while the S&P 500 Dividend Aristocrats index has dropped only 9%. The latter index includes stocks that have raised their dividends for at least 25 years.
Here are two of Morningstars'' top-rated dividend-stock mutual funds.
Vanguard Dividend Growth FundVDIGX
Get Vanguard Dividend Growth Inv Report is focusing on high-quality companies that have the capability and commitment to increase their dividends over the years. Morningstar gives the fund its top gold rating.
Donald Kilbrides, a fund manager, suggests a disciplined, benchmark-agnostic approach to companies with a desire to learn and adapt.
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T. Rowe Price Equity Income FundPRFDX
Get T. Rowe''s Price Equity Equity Income Fd Reportseeks a high level of dividend income and long-term capital growth. Morningstar gives it the firms second highest rating of silver. The fund has a strong analyst team and a well-executed process, according to Morningstar''s Adam Sabban.
While dividend-paying stocks are a key part of this strategy, income is only one of the few considerations. Manager John Linehan wont reach for yields while compromising on fundamentals, although hell sometimes lowers his quality criteria for a stock trading at a significant perceived discount.
Treasuries, CDs, Cash
Individual bonds, which now have yields at four-year highs, may be avoided if their rates continue to rise.
Conservative investors may purchase Treasuries, which they''re almost guaranteed to receive the bonds back when the bonds mature. Moreover, Treasury yields are starting to look attractive. You can do your buying in phases, so that if yields keep increasing, youe may be able to benefit.
Series I Treasury Savings Bonds are a good way to be successful owing to inflation, and the payout goes up 2.92% till October.
Treasuries are almost as secure as Treasuries, and some of them have yields higher than Treasuries today. A three-year CD yield is up to 3.5%, compared to a three-year Treasury yield of 2.73%.
You may want to look at a budgetary Treasury bill portfolio as a result of money-market assets.
Laddered portfolios include a wide range of maturities. This way, you''ll never be stuck with low yields for too long and can always benefit from high yields.
Three-month Treasuries with an initial yield of 1.5 percent, six-month Treasuries with an initial yield of 1.56%, nine-month Treasuries with an initial yield of 1.51%, and one-year Treasuries with a total of 1.07%.