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Investor Education

Smart Ideas for Navigating Today's Market

With market uncertainty once again making headlines, many investors are seeking the relative stability of cash and cash-like investments. While this approach may make sense for those with short time horizons or who are particularly risk-averse, Dreyfus cautions against making drastic changes to your portfolio, at least without careful prior consideration.

Why? Throughout our 60-year history, we’ve seen that quick reactions to market moves can come with a high price — and may significantly affect your ability to reach long-term goals. For most investors, those goals involve growing and/or preserving wealth.

To help you keep the proper perspective, we’ve highlighted four sound strategies that are worth considering in this period of market uncertainty.

Stay Focused - Stay Invested

In the hypothetical example above, note what happened to investors who, following a strong market downdraft, chose to go to the sidelines to wait out the storm.

In both scenarios (investors who redeemed and investors who stayed out three months and came back in), the perceived protection on the sidelines came with a high eventual cost. The chart shows that they significantly lagged the investor who stood firm when markets showed volatility. The lesson here is that it takes resolve to run counter to “the crowd,” but that’s precisely the strategy that can potentially pay the bigger rewards.

 

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Download a prospectus that contains this and other information, and read it carefully before investing.

Discover the Power of Dividends

Dividend income, from both equity and bond fund investments, can play an important part in an investor’s portfolio — especially in periods of slow or uncertain economic growth. Therefore, it’s important to keep these two points in mind:

Dividends Have Historically Improved Long-Term Total Returns
Fixed income investors generally have been rewarded by the income component of bond funds, which can to some degree balance price declines in turbulent or rising rate environments, for example. This concept also applies to dividend-paying equities. Attractive equity returns are derived not simply from the receipt of dividends but from the accumulation of shares as a result of the reinvestment of those dividends, which historically has been a key driver of equity returns over the long run.

A Global Opportunity Set May Offer Greater Potential Rewards
For investors seeking potentially higher yields than are available on U.S. Treasury securities (which offer "full faith and credit" U.S. government backing), it may pay to "go global." In addition to diversification benefits, the international equity and fixed income asset classes shown in the two charts may offer both relatively higher dividend yields and risk-adjusted total return potential versus U.S. domestic-only funds.

World Map
High Current Yields Can Be Found Outside of the U.S. Bond Market

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Download a prospectus that contains this and other information, and read it carefully before investing.

Dollar Cost Average Through Tough Times

If you’re concerned about capital risk in today’s market, we suggest a systematic approach — dollar-cost averaging. Dollar-cost averaging involves investing a fixed dollar amount at regular intervals over a selected time period. To illustrate this point, consider that over the past decade, on average, Investor B, who followed a dollar-cost averaging approach (e.g., 10 monthly investments of $1,000), would have hypothetically achieved more shares purchased than Investor A, who had made a $10,000 initial investment with no subsequent contributions. In fact, during both periods when the stock market was most turbulent, a dollar-cost averaging approach would have purchased significantly more shares at a lower average cost.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Download a prospectus that contains this and other information, and read it carefully before investing.

Go Global with Your Asset Allocation

Look what happened when an all-bond investor added a 20% allocation to stocks. Returns increased and risk (as measured by standard deviation) decreased.

The goal of asset allocation is simple: To identify a mix of assets that will provide the highest potential for return, given the level of risk you are willing to assume.

This is best demonstrated by the illustration above — a chart plotting the historical risk and return for various domestic stock and bond combinations.

Note that the asset allocation approach may also be greatly enhanced by utilizing a broader reach than a traditional U.S.- centered portfolio, and investing across the world markets. Since the world economies are at varying points of a sustained global economic recovery, and with many of the developing markets providing higher growth rates than most developed nations, investors can potentially capture the growth opportunities across the global markets.

Furthermore, by combining fixed income and equity investments, some of which have historically low correlations with one another, you may be able to optimize performance potential in up markets, but more importantly, reduce your overall downside risk in declining markets.

Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Download a prospectus that contains this and other information, and read it carefully before investing.

Equity funds are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees.

Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can produce price declines.

Investing internationally involves special risks, including changes in currency exchange rates, political and economic instability, less market liquidity, lack of comprehensive company information, and differing auditing and legal standards. The fixed income securities of issuers located in emerging markets can be more volatile and less liquid than those of issuers in more mature economies.

*NDR efficient frontier charts are based on Markowitz’s efficient-set theorem that evaluates investors’ alternative portfolios on the basis of expected returns and risk (standard deviation). A portfolio manager can choose an optimal portfolio mix from a group of portfolio mixes that offers the maximum return for varying levels of risk. The typical NDR efficient frontier chart plots 11 portfolio mixes (based on 10% increments in portfolio mixes for two-asset-class charts) according to gain per anum (Y axis) and standard deviation (X axis).