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Term

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Step 8: Riskese

The Term Risk Factor Fixed income is also an important component to an investment portfolio. Since stocks and bonds frequently move in opposite directions, holding low-volatility bonds provides good diversification and will therefore level out a portfolio’s performance by dampening stock volatility and providing short-term liquidity. The “term (maturity) risk factor� refers to the difference in returns between long-term government bonds and short-term treasury bills. Longer-term bonds are riskier than shorter-term instruments and have yielded higher returns over the 86 years ending in 2013. Figure 8-10 shows six different fixed income allocations and their differences in risk and return. Figure 8-10

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