Understanding Investing

Prepare for Economic Changes with a Broader Allocation

Learn how a diversified portfolio can be prepared for a number of economic scenarios.

A portfolio mix that combines both traditional and nontraditional asset classes – such as TIPS and commodities – may be better positioned for a number of potential economic and inflationary scenarios.

What this chart shows
Stocks, bonds and cash, which form the core of many diversified portfolios, generally add value in some economic scenarios. In higher inflationary environments, assets such as emerging market securities, commodities and Treasury Inflation-Protected Securities (TIPS) may perform better.

What it means for investors
Rounding out a core portfolio with nontraditional and real (inflation-hedging) assets can help investors participate in a broader range of economic environments while also managing volatility, which is particularly important in uncertain economic times.

economic changes chart

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Disclosures

All investments contain risk and may lose value. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. High yield, lower-rated securities involve greater risk than higher-rated securities; portfolios that invest in them may be subject to greater levels of credit and liquidity risk than portfolios that do not. Inflation-linked bonds (ILBs) issued by a government are fixed income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Treasury Inflation-Protected Securities (TIPS) are ILBs issued by the U.S. government. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. The value of real estate and portfolios that invest in real estate may fluctuate due to: losses from casualty or condemnation, changes in local and general economic conditions, supply and demand, interest rates, property tax rates, regulatory limitations on rents, zoning laws, and operating expenses. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Diversification does not ensure against loss.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2015