The ETF Portfolio Strategist: 29 September 2021

Blending bonds and stocks is a hardy perennial for asset allocation, primarily because of the negative return correlation between the two asset classes that’s prevailed in years past. That is, when stock prices fall (rise), bond prices rise (fall). But this negative correlation isn’t written in stone and fluctuates through time. Recent history suggests it’s fluctuating its way into positive terrain. If so, the diversification benefits of a stock/bond portfolio will fade and possibly evaporate altogether, depending on how positive the return correlation becomes and how long it lasts.

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