Investing for Outcomes

Evolving diversification is as important as ever. Looking back, adding alternatives to your portfolio could have offered broader diversification and the potential to reduce risk and enhance return.

Reduced Risk

Over the past 15 years, alternatives have been able to offer less volatile returns. Moving part of a stock allocation into alternatives could have reduced the overall risk (volatility) of a portfolio.

Over the past 15 years, alternatives have earned returns similar to stocks but with risk more comparable to bonds. Moving part of a stock allocation and a larger portion of a bond allocation into alternatives could have led to increased returns for a portfolio.

 
15% from Stocks
to Alternatives
5% from Stocks,
10% from Bonds
to Alternatives
60% Stocks, 40% Bonds
45% Stocks, 40% Bonds, 15% Alternatives
55% Stocks, 30% Bonds, 15% Alternatives

For illustrative purposes only.

Reduced Risk
Bonds 40%
Stocks 45%
Alternatives 15%

Evolving Asset Allocation

Drag the toggles on the pie chart to build a portfolio.

Hypothetical Portfolio

Historical Results ( - )

Balanced Portfolio 60% Stocks & 40% Bonds
Hypothetical Portfolio A combination of stocks, bonds and alternatives, allocated as shown by the adjustable pie chart.
Return:Return is the (geometric) average percentage increase in the value of a portfolio experienced each year over the time period analyzed.
Risk:Risk measures the historical volatility of a portfolio's return. Higher standard deviation means more extreme ups and downs in the value of a portfolio over time.
Sharpe Ratio:Sharpe ratio is a measure of a portfolio's risk-adjusted returns. Higher Sharpe ratios indicate higher returns for a given level of risk taken.
*Return and risk statistics using annualized data

Reducing Stock Market Extremes

Continue making adjustments to the portfolio to reduce the number of months it could have experienced extreme returns.

Distribution of Monthly Returns -

MONTHS OF EXTREMEThese are considered as months that moved more than 1 standard deviation either up or down from the S&P 500's monthly average over the past 15 years. RETURNS
S&P 500: Months
Hypothetical Portfolio: Months
MONTHS OF NORMAL RETURNS
S&P 500: Months
Hypothetical Portfolio: Months
MONTHS OF EXTREMEThese are considered as months that moved more than 1 standard deviation either up or down from the S&P 500's monthly average over the past 15 years. RETURNS
S&P 500: Months
Hypothetical Portfolio: Months
Hypothetical Portfolio A combination of stocks, bonds and alternatives, allocated as shown by the adjustable pie chart.
S&P 500 An unmanaged, total return index covering 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). It represents about 75% of NYSE market capitalization and 30% of NYSE issues.

Examining Additional Sources of Return

Change the portfolio allocation to see how alternatives could have affected its return.

Hypothetical Growth of $10,000 Invested -

Hypothetical Portfolio A combination of stocks, bonds and alternatives, allocated as shown by the adjustable pie chart.
Balanced Portfolio 60% Stocks & 40% Bonds

Market Flashback

Click and drag time periods into the chart to see how the portfolio could have stacked up against a balanced portfolio.

Historical Market Periods

Credit Crunch 6/30/07 - 6/30/08
2008 Recession 11/30/07 - 2/29/09
2008 Market Crash 8/30/08 - 10/31/08
US Downgrade 6/30/11 - 9/30/11
Fed Stimulus Tampering 4/30/13 - 6/30/13
Hypothetical Portfolio A combination of stocks, bonds and alternatives, allocated as shown by the adjustable pie chart.
Balanced Portfolio 60% Stocks & 40% Bonds
Alternative Investments represented by the Credit Suisse Multi-Strategy Index

The Credit Suisse Multi-Strategy Hedge Fund Index is a subset of the Credit Suisse Hedge Fund IndexSM that measures the aggregate performance of multi-strategy funds. Multi-strategy funds typically are characterized by their ability to allocate capital based on perceived opportunities among several hedge fund strategies. Through the diversification of capital, managers seek to deliver consistently positive returns regardless of the directional movement in equity, interest rate or currency markets. The added diversification benefits may reduce the risk profile and help to smooth returns, reduce volatility and decrease asset-class and single-strategy risks. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.

Bonds represented by the Bloomberg Barclays US Aggregate Bond Index

The unmanaged, market-weighted Bloomberg Barclays US Aggregate Bond Index comprises investment-grade corporate bonds (rated BBB or better), mortgages and US Treasury and government agency issues with at least 1 year to maturity.

Stocks represented by the S&P 500 Index

The unmanaged, total return S&P 500 Index covers 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). It represents about 75% of NYSE market capitalization and 30% of NYSE issues.

For Important Additional Information:

Unless otherwise noted, all data is from to .

Alternatives are represented by the Credit Suisse Multi-Strategy Index, a subset of the Credit Suisse Hedge Fund Index that measures the aggregate performance of multi-strategy funds. Multi-strategy funds typically are characterized by their ability to allocate capital based on perceived opportunities among several hedge fund strategies. Through the diversification of capital, managers seek to deliver consistently positive returns regardless of the directional movement in equity, interest rate or currency markets. The added diversification benefits may reduce the risk profile and help to smooth returns, reduce volatility and decrease asset-class and single-strategy risks. Strategies adopted in a multi-strategy fund may include, but are not limited to, convertible bond arbitrage, equity long/short, statistical arbitrage and merger arbitrage.

Bonds are represented by the Bloomberg Barclays US Aggregate Bond Index. The unmanaged, market-weighted Bloomberg Barclays US Aggregate Bond Index comprises investment-grade corporate bonds (rated BBB or better), mortgages and US Treasury and government agency issues with at least 1 year to maturity.

Stocks are represented by the S&P 500 Index, an unmanaged, total return index covering 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE issues). It represents about 75% of NYSE market capitalization and 30% of NYSE issues.

Volatility refers to annualized standard deviation of monthly returns for the time period noted. Standard deviation is a measure of the dispersion of an investment's actual returns compared to its expected returns. Standard deviation is only one element of risk. Other risk factors should be considered.

Investing in alternative investments presents the opportunity for significant losses, including the loss of your total investment. Such strategies have the potential for heightened volatility and in general, are not suitable for all investors.

This material is provided for illustrative purposes only and does not constitute investment advice. There is no guarantee that any strategies discussed will be effective. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in these materials does not constitute any legal, tax or accounting advice. Please consult with a qualified professional for this type of advice.

This material contains general information only and does not take into account an individual's financial circumstances. An assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Asset allocation and diversification strategies do not guarantee profit or protect against loss.

Investing involves risk, including possible loss of principal. Consult with your financial professional for additional information. You should consider the investment objectives, risks, charges and expenses of iShares and BlackRock mutual funds carefully before investing. The prospectuses and, if available, the summary prospectuses contain this and other information about the funds and are available, along with information on other BlackRock funds, by visiting www.blackrock.com/funds or ishares.com. The prospectuses and, if available, summary prospectuses should be read carefully before investing.

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Prepared by BlackRock Investments, LLC, member FINRA.

USR-10046

About this Market Flashback:

This Market Flashback assumes no portfolio rebalancing over the times period listed. Results are for illustrative purposes only and do not guarantee future results. It is not possible to invest directly in an index. Index performance returns do not reflect any management fees, transaction costs or expenses.

There is one type of analysis available in this tool – historical date range

  • Historical Date Range: Defined using the starting and ending date values of each date period. The performance cited for the hypothetical portfolio in each time period is the weighted average of each index's returns over that time period. The time periods indicating each event were determined by BlackRock's research.

Alternatives are represented by the Credit Suisse Multi-Strategy Index.

Bonds are represented by the Bloomberg Barclays US Aggregate Bond Index.

Stocks are represented by the S&P 500 Index.