How to get started investing for only $5.00

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In the Markets

Last week, the Fed raised interest rates again — not a surprising move after the August inflation numbers came in high. The Fed also signaled another big rate hike to come before the end of the year. As the markets react to rising rates, it’s a good reminder to lean in to the power of diversification — or spreading out your investments with different types of assets, such as stocks and bonds. Here’s how it works.

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Investor A vs. Investor B

Diversification can help smooth out the risk to your portfolio when one type of asset hits a rough patch. In today’s high-rate, high-inflation environment, bonds can be a stabilizing influence. Take this example from another high-inflation period in history. Investor A put $1000 in stocks in November, 1980. At the market's low point in 1982, Investor A had $730. Investor B put $600 in stocks and $400 in bonds at the same time. At the market's low point in 1982, Investor B had about $923. Even though both investors lost money, Investor B's diversified portfolio fared better because U.S. bonds rose 21% at the same time that the stock market was suffering. This left Investor B in a better position to potentially benefit when the market recovered. And remember — every market downturn in U.S. history has ended in an upturn.

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How you can diversify

Diversified portfolios that hold a mix of stocks and bonds can help investors balance out their returns over time. Why? Historically, when stocks go down, bonds often go up. The interest rate hikes we’ve seen this year have led to higher bond yields (income), and lower bond prices. Yields on the widely-followed 2-year Treasury Bond hit 4% for the first time since 2007, meaning a $1,000 investment would pay $40 per year. Last year, the same investment returned just 0.25%. What’s in your portfolio? All of the Acorns portfolios are diversified by design. To learn more about what’s in yours, tap “Portfolio” from your Invest screen. This content was created by Acorns and the following contributors below. To get more from this and future articles join Acorns with only a $5 investment. I did and I'm glad that I did and reccomend it to everyone and their kids.  Contributors to this week’s newsletter: Kennedy Reynolds (Chief Content & Education Officer), Seth Wunder (Chief Investment Officer), Trevir Nath (Senior Writer), Caelon Smith, (Investment Data Analyst), Katherine Mayhew (Senior Designer), Emily Gadd (Associate Editor) and Casey Hollis (Managing Editor).

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