Reality: In order to attain greater returns in the long run, donors must be willing to tolerate short-term losses.
Reality: It's rare that a particular asset class would ever be the top performer for two years in a row. Assuming that recent trends will continue without looking closely at the details is a recipe for disaster.
Reality: A lower percentage payout on a larger principal amount is often better for the income beneficiary than a higher percentage payout on a principal amount that is diminishing due to distributions.
Reality: It's impossible to consistently time the market profitably, and being out of the market for even a few days can dramatically impact investment performance.
Reality: Diversification is the best way to reduce the risk exposure of a portfolio. By holding a variety of assets that are affected differently by changes in the market, it's possible to diminish the amount of volatility the portfolio may experience.
Reality: All fixed income securities have the potential to lose value, as they are exposed to both interest rate risk and credit risk.
Reality: Experienced investors understand that a successful investment strategy relies on discipline, maintaining a long-term perspective, and often involves sticking to principles even when doing so may feel uncomfortable in the short run.
This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. ©2016 The Bank of New York Mellon Corporation. All rights reserved.