Nov 28

What is Asset Allocation?

Allocating assets within your retirement account sounds more confusing than it really is. Asset allocation is more than just having stocks and bonds in your portfolio. Just think about your portfolio divided into a combination of various types of assets and classes that display what your investment goals are as well as what you can risk or are willing to risk.

Of importance is to have assets in your portfolio that do not move in the same direction at the same time. This is what is referred to as a balancing of your portfolio. Ultimately, if some assets take a down turn, others will be moving upward; thus, reducing the risk of loss to your portfolio.

Asset allocation is the most important decision you as an investor needs to make.

Simply put…where are you going to put your money? 

 

Asset Allocation for Investors.

There are different approaches an investor can take as a strategy to balance their portfolio. Some types of asset allocation models are strategic, constant, tactical, dynamic etc. Each has a different weighted approach to investing avenues but with research you can sure find one that works for your retirement account.

The asset allocation strategy that will work for you as the investor will depend on your personal investment strategies, age, type of investments held and more.

Some of the more common asset holdings for portfolios are traditional assets and alternative assets.

Traditional Assets are:

  • Stocks (dividend, value, sector specific type, small cap, large cap etc.)
  • Bonds (short-term, long-term, government etc.)
  • Cash (savings account, money market funds etc.)

Alternative Assets are:      

  • Commodities (precious metals, energy, agriculture etc.)
  • Real Estate (commercial or residential)
  • Insurance Products (settlements, annuity, life etc.)
  • Collectibles (coin collections, stamp collections, car collections etc.)

History has shown that investors who allocated some of their retirement fund in precious metals has given the account proper diversification, stability and the ability to properly maintain their risk that most retirement accounts need. Since gold and silver as well as other precious metals usually move in the opposite direction of the more regularly held types of investment choices. In case of a stock market crash or a steep decline in stocks and bonds, backing your retirement fund with some type of gold or silver provides a safety net for your funds preventing a complete loss of your monies.

No matter how an investor is allocating their assets, there should always be some type of diversification. This will decrease the risk of losing quite a bit of money at once. Remember, the less diversified a portfolio is, the greater the volatility in the portfolio as once there is a fall off in one asset the greater the decrease in your portfolio.

Nov 17

Types of Investments

Generally, there are three various types of financial investments. These consist of stocks, bonds, as well as cash money. This sounds pretty basic, right? Well, unfortunately, it acquires quite much more complexity from here. You see, each sort of financial investment has many kinds of financial investments that drop under it.

There is a lot to learn about each of these investment types. The stock market can be a very scary place for those that know don’t know much about investing. But the good news is the amount of information regarding the investment will depend on the type of investor you are or want to become. As you may know there are three categories of investors: a conservative investor, a moderate investor and an aggressive investor. These types of investments will also the risk tolerance for the investor which are high and low risk.

Investors who are considered conservative with the monies will typically invest cash. This means that they invest their monies in savings accounts, mutual funds, money market accounts, U.S. Treasury bills and Certificates of Deposit accounts, or those that are interest bearing over an extended period of time. These types of accounts are considered more of the low risk types of investments.

A moderate investor will typically have cash in savings and bonds. They also may have a little money invested in the stock market. Their investment choices are typically low to moderate risk types of investments. They are more likely inclined to invest in real estate, as long as it is low risk.

Aggressive investors are just that…more aggressive. Majority of their investing is in the stock market which is of much greater risk. They typically lean towards investing in businesses as well as higher risk real estate deals. For instance, buying older properties wherein they need to spend a lot of money on renovations, which in turn puts their investment at a higher risk. Their expectation is that they will be able to rent the property at a much higher price than what it is renting for currently or sell the property at a much higher price than the value prior to renovations. Sometimes this works and sometimes this does not. This is where the term risk comes into play.

My advice to you is before you start investing study and learn everything you need to know about the different types of investments and what the benefit to you will be from those investments. Understand all of the risks involved with each investment. Also, check the history of the investment you are looking at as like they say, “history does repeat itself” when it comes to investing. In no time, you will have a portfolio that will make you proud.

Oct 21

Importance of Diversification

I know you’ve heard the saying, “Don’t put all your eggs in one basket!” If you are like me, you have heard this saying many times throughout your lifetime. And just like many other times in life, investing is another one of those times when this saying holds true. Diversification is the key to profitable investing. If you want to be a successful investor, you must create a portfolio that is diversified.

When you want to diversify your investment accounts you may want to invest in stocks, bonds, commodities, real estate, etc. Do you see what this means? Proper diversification is investing in diverse areas rather than just one.

History has shown that investors who properly diversified their portfolios consistently seen profitable returns rather than those who chose to put all of their eggs in one basket – so to speak. Not to mention that investing in several different areas also lessens your portfolio risk.

An example is that if you invested all of your money into one particular stock and that stock crashes, you have just lost all of your money. But if you properly “diversified” your investment account and invested in different areas, you will find that while one may crash the others have not and your investment account is fine.

There are many options for proper diversification of one’s account which include stocks, bonds, cash, commodities like gold or silver, and real estate. Don’t worry if you are not able to immediately invest in all of these. Starting with one and then slowly investing in the rest is fine. Just make sure you do spread your investing around.

On the other hand, if you are able to spread your initial investment amongst various types, you will have lowered your risk of losing money on your investments and increased profitability by not putting all your eggs in one basket.

Oct 18

Investing for Retirement

Retirement Nest EggThat dream day of retirement for you can be in the near future or down the road but no matter the time frame, saving and investing for retirement is a must.

Why? The instability of social security coupled along with the increase in the cost of living to name a few.

That is why I recommend investing for retirement rather than just saving for it.

 Do you have a retirement plan offered to you at your place of employment? If so, do you feel confident that it will be enough to retire on?

In addition to your company’s retirement plan, you also have other options for retirement investments.

Some of these additional options include stocks, bonds, certificates of deposit, mutual funds and money market accounts.

These investments can let your money grow over time and if an investment reaches its maturity, simply reinvest and keep on letting your investments grow.

Another option is an Individual Retirement Account (IRA). 

The popularity of an IRA is growing amongst investors due to the fact that you are not taxed on your money until you withdraw the funds and your contributions are tax deductible.

Opening an IRA is very easy. There are many banks that will open an IRA for you.

And yet another popular IRA choice is the Roth IRA.

This type of IRA is one in which you will pay taxes on your money but when you withdraw your monies you will owe no federal taxes.

Again, a Roth IRA can be opened at just about any bank.

There is also the ever popular 401k plan.

This type of plan is typically offered through your employer but there is also the possibility of opening a 401k on your own. A financial adviser would be able to better assist you with this.

Another type of IRA is the Keogh Plan which is directed towards those individuals who are self-employed.

In addition to the Keogh Plan, self-employed individuals can also invest in a SEP Plan which stands for a Simplified Employee Pension Plan. This type of plan is known to be a little easier to invest in than the Keogh Plan.

No matter what retirement investment account you choose, just ensure that you do choose one.

Being dependent upon social security, employment retirement accounts, winning the lottery or getting a large inheritance may or may not happen.

It is up to you to take care of yourself and investing in yourself is the best way to do so.

Oct 18

Investing Basics

It never fails that when it comes to investing, new investors always want to just dive right in. But did you know that investors who do that rarely succeed? Did you know that to invest really does require doing some homework? Also, did you know that it does require having some skill such as the ability to recognize what will best meet your future needs? It is extremely important that you realize not all investments will return great profits. It is extremely important that you are risking losing a great deal of money if you feel that you can master investing without first doing any type of homework on investments first. Just consider yourself warned….

Now before going full throttle into investing identify what your goals are.  Decide what you hope to achieve with your financial investments. Could it be you are looking at funding a college education for a child, purchasing a home, retirement? What is it that you are looking to achieve? Before investing any money think about it. Deciding what your investing goals are will make you a smarter investor in the long run.

It is not uncommon for individuals to invest money thinking they will become rich overnight. The possibility of this is quite rare. Thinking of instant riches is not what smart investors envision. Smarter investors will do so in a way that their monies will grow over time so that their dreams of retirement and their child’s education will be fully funded.

You can also consider speaking to a financial adviser if all of this seems overwhelming and you are unsure as to what investment decisions you want to make. A financial adviser can help you make the right decisions to obtain your financial goals.

Just keep in mind that successful investing is more than buying stocks and bonds or paying a financial adviser to do it for you. You still need to do your homework and find out the best way to invest your money and on what you want to invest your money with.  Don’t throw your hard earned money into the wind…invest the smart way and you will be meeting your goals sooner than you think.