Equity versus Fixed Income (Target = Middle) – We think the bull market in stocks can continue, supported by modest economic growth and slow earnings growth. Interest rates remain low, and the Federal Reserve intends to reduce interest rates to help extend the expansion. A laddered bond portfolio and an above-average amount in cash may help provide downside protection for portfolios when markets are volatile..
Domestic versus International (Target = Middle) –We recommend overweighting international equities (including emerging market stocks) and underweighting international fixed income. Global growth remains slow, but international equities look attractive due to low valuations and the potential for additional stimulus to improve the outlook..
Aggressive (Target = Middle): We remain cautious on commodity investments but recommend adding emerging market equities, which we think are attractively valued and could benefit if trade tensions begin to ease and global growth improves.
Growth (Target = Middle): U.S. small- and mid-cap stocks are still attractively valued compared to large-cap stocks and well-positioned when interest rates stay low and the economy grows modesty as we expect. Opportunities and risks appear balanced for international small-cap stocks.
Growth & Income (Target = Middle): We think risks and opportunities are balanced for real estate investments and U.S. large-cap stocks. We recommend overweighting international developed-market large-cap equities because expectations are low, dividend yields are attractive, and we expect them to benefit from policies to improve global economic growth.
Income (Target = Low):Long-term interest rates tend to move with inflation, which may rise slightly as labor markets tighten. The aggressive income target is middle because we think rates on high-yield bonds compensate for their additional risk and default rates remain low. We think international fixed income looks relatively unattractive due to very low foreign interest rates.
Cash (Target = High): We recommend overweighting cash to cover short-term expenses and to invest during pullbacks.
Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates, and investors can lose some or all of their principal. The prices of small-cap, mid-cap and emerging-market stocks are generally more volatile than those of large company stocks. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.
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