Broker Check

A Proper Strategy of Diversifying Your Assets is Key to Your Success

Common Asset Categories

Cash Assets are best used for emergencies and cash or income that will be needed in the next 2 or three years. They have less risk, but still have purchasing power risk.

  1. Savings Account
  2. Money Markets
  3. Checking Accounts

Fixed Assets generally have lower volatility but less of a return than equity investments. Because of lower interest rates, bonds will be subject to interest rate risks. Higher interest rates affect bonds because the current price is based on yield to maturity (or call). To hedge against interest rate risks, some people ladder their bonds (or in time of inverted interest rates may stay with short term securities. Also, high yield bonds (junk bonds) have a higher default rates than high grade bonds. Junk bonds often have a correlation with the stock index. Fixed assets can lower your portfolio volatility, and can be used successfully for income. So for income needed in the next 10 years, fixed assets are often used. Their historical returns are higher than cash, lower than equities.

  1. Bonds
  2. Notes
  3. Certificates of Deposits
  4. Annuities
    • Fixed Annuities
    • Indexed income Annuities

Equity Assets historically have had the highest return and highest volatility. Twice in the last 20 years there has been a 50% correction happened to the S&P 500 (500 of the largest companies in America). For the growth portion of a portfolio they sometimes fit well as they are an excellent hedge against inflation. Investors should never be forced to take money out of these investments after a substantial downturn. Some examples are:

  1. Equity mutual funds or exchange traded funds
    • Should diversify by different size
    • Value and growth
    • Domestic or foreign
  2. Individual stocks
    • Individual company risks
    • Takes a lot of investigation in individual companies
    • Need to know and trust the management
  3. Real estate
    • REITS
    • Real Estate Exchange Traded Funds’s or funds
  4. Commodities
    • Need to know fundamentals
    • Charting is important.  
  5. Variable Annuities

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