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Michelle Holmes

June 12 , 2017

Diversification is Key!


When we talk about diversification, many investors think about diversifying their stock exposure. The bond market is no exception to this rule. Different areas of the bond market perform better in various economic and interest rate environments, which is why at Security National Bank Wealth Management we manage both the bond and stock side of our portfolios with a diversified approach to investment management. 

Our bond portfolios have three distinct aspects, core holdings, satellite investments and short-term holdings. We start with the core holdings and build out from there. The core component is a diversified mix of U.S. intermediate-term bond funds. This component provides a diversified base of investments and income for the bond portfolios.

The satellite component includes foreign, emerging market, high yield and inflation protected bond funds. This exposure enhances the income of the core holdings and provides additional diversification. These types of asset classes may fluctuate more in market value but when used in conjunction with the core holdings can reduce the amount of volatility in the overall bond portfolios. This happens because these types of assets do not always move up and down in market value at the same time as the core holdings. 

The short-term exposure is either a ladder of individual bonds or bond funds depending on the size of the portfolio. This exposure comes from the second question we always ask ourselves in the investment area, “What if we are wrong?”  Our investment philosophy on the bond side of a balanced portfolio is to provide principal protection and income. The short-term exposure provides principal protection or stability to the bond portfolios.

The investment team manages the amount we have in each of these distinct components of the bond market. Depending on the economic and interest rate environment, we may increase or decrease exposure in each of the three distinct components of our bond portfolios to provide income, diversification and stability.  

If you have any further questions on our bond and stock portfolios, contact the Security National Bank Wealth Management team.

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