And what about “The Taper”?

Things were going along pretty well this year, until Fed chairman Bernanke indicated that he might “taper” the bond buying stimulus, causing market makers and hedge fund managers to decide to take profits. As a result, most investment assets lost value.

Usually, information which would cause one asset type to lose value would also cause another asset type to gain value. However, in recent years our global, macro-driven economy has become more correlated. This makes managing portfolio risk more challenging.

Still, there are solutions to this problem. For instance, we have generally held short and intermediate term bonds in our portfolios, instead of longer term bonds. This has made us less susceptible to loss due to increasing interest rates. We have also held several categories of bonds, including inflation adjusted bonds, and international bonds, developed and developing. And, of course, we own multiple additional categories of assets domiciled in multiple global locations, denominated in various currencies.

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