Total return is a key investment objective that aims to maximize overall portfolio returns over time. This requires balancing growth and income components and managing risk. A total return strategy utilizes multiple asset classes to generate capital appreciation as well as dividend and interest income. By diversifying across stocks, bonds, real estate and other assets, investors can smooth out volatility while benefiting from compound growth. This article will illustrate total return investing principles with balanced portfolio examples.
Blend blue chip stocks and high-yield bonds for growth and income
A balanced stock and bond portfolio is a classic total return strategy. Blue chip stocks provide growth potential from share price gains plus rising dividends over time. Investment grade and high-yield corporate bonds generate a steady income stream from coupon payments. Blending 60% in stocks and 40% in bonds provides upside while the fixed-income portion dampens volatility. Rebalancing periodically maintains target allocations as asset values fluctuate.
Include alternative assets like REITs for further diversification
Expanding the mix beyond mainstream stocks and bonds can enhance total returns. Real estate investment trusts (REITs) offer exposure to property markets, providing income from rents plus appreciation. Commodities like gold can hedge inflation. Master limited partnerships (MLPs) benefit from oil and gas cash flows. While alternatives may be complex, a 10-20% allocation can lift long-term results through improved diversification.
Manage risk through broad diversification and rebalancing
Total return strategies recognize risk management is integral to long-term success. Broad diversification across and within asset classes reduces concentration in any one security or sector. Rebalancing forces investors to sell high and buy low to stay in line with target allocations. Limiting volatility helps limit panic selling during market downturns. Sticking with a total return approach can produce superior risk-adjusted returns.
A total return investment strategy balances growth and income opportunities to maximize portfolio returns over the long run. Combining stocks, bonds and alternatives promotes diversification. Rebalancing and risk controls are key for smoothing volatility. With patience and discipline, total return investing can meet objectives for growth, income and capital preservation.