Impact Capital’s quarterly research report seeks to highlight the latest developments most relevant to your investments and financial planning. In this installment of Three Market Themes, we focus on the importance of holding a diversified portfolio, the recent downward trend in inflation rates, and how defined outcome ETFs provide downside protection for your portfolio.

1. Why Be Diversified

This table illustrates the returns from different asset classes over the last ten years, with each asset class taking its turn at the top.

Holding a diversified portfolio has provided a consistent return, so spreading your investments across different asset classes can help reduce your risk as one will not affect your entire portfolio.

2. Did Inflation Peak?

Have we just witnessed the peaking of inflation? The price of all types of commodities have fallen recently, with the red arrows in this chart showing when each topped out this year. Since those peaks, prices have fallen:

Lower inflation may persuade the Federal Reserve to raise interest rates at a slower pace, which could be supportive to both stock and bond prices.

3. How Defined Outcome (Buffer) ETFs Work

Since earlier this year, we’ve maintained an allocation to defined outcome ETFs, also called Buffer ETFs.

The goal of using these funds is to provide downside protection, while still maintaining the opportunity to make money, should the market go up.

This table shows the projected performance of this strategy under various market scenarios.