Equities, Fixed Income and the Power of a Strong Midfield

Understanding the dynamics between equities and fixed income can be made clearer by comparing it to a soccer match, where each player—or, in finance, each component of an asset allocation—has a distinct role to play. 

– Equities represent the offense in our financial game. They’re the goal scorers, characterized by high volatility but also the potential for high rewards. 

– Bonds act as the defense. They offer a level of stability and yield, serving as a buffer against market downturns. 

– Cash, the ultimate safeguard, is akin to the goalkeeper. It’s there to preserve capital and provide liquidity, ready to spring into action when needed. 

In a traditional 60/40 asset allocation, considering drawdowns, volatility, and returns, about 93% of the risk is concentrated in the equities—the offensive side. This disproportionate risk is referred to as the risk gap or volatility gap™. 

This gap can be paralleled to the role of the Midfielder in soccer. Their task is to modulate the game’s tempo or volatility, assisting the offense in scoring opportunities and supporting the defense when the play shifts towards their own goal. 

Incorporating a “financial midfielder” between equity and fixed income can lead to potentially reduced volatility without compromising long-term returns. 

Curious about how you can effectively fill this critical midfielder role within your financial strategy and help solve the volatility gap™ between offense and defense?  

Anchor Capital is here to guide you. Our team specializes in solving the volatility gap while pursuing growth in all market environments. Reach out to see how we can help navigate this risk gap™ and win the game.