When building a portfolio of investments to meet a specific objective, it is critical to select a combination of assets that offers the best chance for meeting that objective, subject to your constraints. Assuming you use broadly diversified holdings, the mixture of those assets will determine both the returns and the variability of returns for the aggregate portfolio.
A diversified portfolio's proportion of stocks, bonds, and other investment types determine most of its return as well as its volatility. Attempting to escape volatility and near-term losses by minimizing stock investments can expose you to other types of risk, including the risks of failing to outpace inflation or falling short of an objective.
Investing for growth, income, balance, or safety
Depending on the your objective, you'll use some combination of assets that will help you achieve your investment goal. A growth investor is seeking capital appreciation or higher returns. They will invest primarily in stocks. An income investor will invest in bonds or more stable stocks with higher dividends. Preferring current income over capital appreciation. A balance investor will use some combination of both while an investor seeking safety and stability will use short-term instruments such as money markets or savings accounts in an attempt to avoid capital loss or volatility.
Exchange traded funds (ETFs) verses mutual funds or individual securities
If your objective is broader diversification and balance, ETFs are most likely a better choice than mutual funds or individual stocks and bonds. ETFs are an efficient way to invest among indices or large pools of securities. They generally have lower expenses, improved tax efficiency, and greater trading flexibility than mutual funds.
Gold and silver: These precious metals are becoming much more popular as concerns over inflation and other economic uncertainties increase. The prices of both have risen considerably over the last decade. Gold can be purchased in its hard metal form as bullion or coins, and investors can also participate in these metals through mutual funds that focus on the stocks of mining companies.
Real estate: In recent years, real estate has become less of a sure thing as investments, however, over the long term, they can still be a good hedge against inflation. Investments such as Real Estate Investment Trusts (REIT) make it possible for smaller investors to participate in various sectors of real estate. Similar to mutual funds, REITs, invest in a portfolio of properties in either the commercial market or multi-family residential market.
All of these investments entail market risk which means there is always the possibility of selling an investment for less than its purchase price. Investors should fully understand their own tolerance for risk and should only consider investing as a long-term proposition. Market risk can be reduced through a well-conceived, broadly-diversified investment strategy consisting of multiple asset classes. Working together, we can help you identify your investment objectives and risk profile in order to create a customized, long-term investment plan.
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