Numerous studies have revealed that over long periods of time, equity securities (stocks) have produced attractive rates of return relative to other asset classes, especially when taking into account the ravaging effects of inflation, taxes and expenses.
Yale Professor Roger Ibbotson, widely recognized for his work in the area of asset allocation, has studied the history of capital markets dating back to 1926. During this lengthy period that includes war and peace, economic growth and decline, bull and bear markets, inflation and deflation and many other significant events, Professor Ibbotson has shown that stocks have significantly outperformed other asset classes, albeit with more volatility.
At Peregrine, we are attracted to the long-term rates of return that stocks have generated, so equity investments typically receive a significant allocation in our clients' portfolios. At the same time, we realize that there are situations that call for mitigation of some of the volatility associated with equity investing. For example, some clients have shorter time horizons, some need to make regular withdrawals from their portfolios, some have financial circumstances and/or objectives that don't require pure equity-type returns, and some simply have a low tolerance for price fluctuations. In these situations, we use fixed income securities (bonds/cash) in a complementary role to help dampen portfolio volatility.
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