Looks like there’s hardly any hiding place for investors this year. Stocks are volatile, and bonds haven’t outperformed for much of this year. US investment grade bonds have fallen in 2022. The iShares Core US Aggregate Bond ETF — which tracks the Bloomberg US Aggregate Bond Index — has fallen nearly 8% since the beginning of this year, although the bond market has calmed down a bit lately. Historically, when stocks declined, bonds rose. This negative correlation turned positive during the pandemic, mainly due to rate cuts by central banks to stimulate the economy. But analysts have recently been bullish on income investing as returns have begun to rise again, Goldman Sachs said in an August report that said the strategy is set for a return. Here are some ways the pros suggest investors can diversify their portfolios and seek protection against market volatility as well as higher yields as inflation continues to rise. 60/40 portfolio The poor performance of stocks and bonds, as well as high inflation, have led some analysts to declare the death of the 60/40 traditional portfolio – made up of 60% stocks and 40% bonds. Inflation has generally been bad news for bonds. But some bank strategists have said recently that the strategy will still work. Morgan Stanley said that portfolio could still yield more than 6% annually — and diversification continues to offer investors some protection from volatile stocks. Wells Fargo said in an August 2 note that this strategy is still “alive and well”. Based on the historical average, the bank is expected to deliver double-digit positive returns after the negative performance over the next three years, the bank said. “In the rebound phase after calendar years of negative 60/40 performance, stocks outperformed bonds by a significant margin, averaging 18.2% versus 4.5%, respectively,” Wells Fargo analysts wrote. “Ultimately, after the recession in 2008, the 60/40 portfolio experienced positive returns in 12 of the past 13 years, eight of which had double-digit returns by the end of 2021.” Wells Fargo said the average yield of the Bloomberg US Aggregate Bond Index has also risen to 3.5% from about 1.5% since mid-2021 – the sharpest one-year jump since 1994. Consider high-quality, investment-grade bonds In June, global debt suffered the sharpest decline since the pandemic, and the first half of the year recorded a record both in terms of excess returns and total returns, according to Wells Fargo Securities. But it was the worst. But if investors are selective enough, they can still find pockets of relative safety in some bonds, according to analysts. High-quality, long-term bonds would be the best investment idea, Vanguard portfolio manager Sarang Kulkarni told CNBC’s “Squawk Box Europe” in late July. “From a valuation perspective, they have improved a lot … It’s not just Treasuries, it’s not just government bonds,” he said, adding that high-quality bonds have a “defensive feature” against inflation. The following are some bond funds that have managed to outperform their peers, as they are less sensitive to interest rates, Morningstar said in a late-July report. Bond prices are inversely related to interest rates. US-Resident Vanguard Short-Term Inflation-Protected Securities Index Fund Invesco Corporate Bond (UK) M&G Corporate Bond Fund Consider M&G Strategic Corporate Bond Thematic Funds Investors should consider thematic funds between 10% and 20% of their portfolio. may consider allotting. According to Morningstar, which plays on secular development themes and therefore “has tremendous potential to enhance portfolio results”. The firm says such funds have recently grown in popularity, and technological innovation in other areas, focusing on topics around consumer habits. An equal-weighted thematic index “produces consistently superior returns” with a compound annual growth rate of 7.48% compared to 6.28% for the Morningstar Global Markets Index. “We believe that thematic investing provides an attractive option for investors who do not wish to be limited to regional and sector funds. We are of the view that if done properly, investing in thematic investments will help investors The U.S. may find the situation for blue chips in the future, Morningstar said in a recent report. Investing in Infrastructure Since consumer price growth shows no signs of slowing down, infrastructure is a good investment because of its “investment portfolio.” has the potential to act as an inflation hedge”, asset manager Franklin Templeton said in a July report. “Infrastructure is generally able to adjust to inflationary environments because it is largely pre-programmed. The manner in which inflation builds into regulation and contracts,” it said. The firm also pointed out that income from infrastructure is pegged on long-term contracts, ensuring a steady flow of revenue over the long term.