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Market volatility can feel a bit like turbulence in the middle of a relaxing flight. It can come out of nowhere, it can shake up your whole portfolio (or your red wine) and you’re suddenly questioning all your life choices.

But planes are designed to withstand the choppy weather…just like the sharemarket. Thankfully, choppy flights and choppy times don’t last forever. In fact, over the past 120 years, 81% of calendar years have ended with positive returns on the All Ords (100 out of 124).

But that doesn’t mean sharemarkets don’t fall. And when they do fall, they can often fall sharply. That’s where more defensive assets, like fixed income securities, come in. These are assets that often behave differently and become an antidote to sharemarket falls. 

For example, the S&P 500 lost approximately 50% of its peak value during the Global Financial Crisis (GFC) in 2007-2009. But longer-term US Treasury bonds returned more than 11% over the same period.

So it’s no surprise that fixed income products are often described as shock absorbers. While it won’t stop the bumps, it can make the ride a whole lot less brutal.

This different behaviour matters most when emotions are running high. 

When markets fall hard, logic tends to leave the cabin.

Research shows that volatility pushes people to make decisions they later regret. In fact, during the COVID-19 pandemic, nearly 8% of investors panic-sold all or a portion of their stocks out of fear.

But by holding assets that don’t move in lockstep with shares (iei.e. fixed income securities), portfolios tend to fall less during downturns… meaning less reason to panic!

So these defensive assets can be considered the seatbelt of your investment portfolio. You don’t notice it much when everything’s calm, but it becomes veeeeery important when things get rough.

So whether your goals are income, diversification or total returns, Franklin Templeton’s range of fixed income strategies can play a role as part of a diversified portfolio.

Find out more about Franklin Templeton’s fixed income capabilities

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