Picking stocks may be more fun than inferring “asset allocation,” the percentage of stocks, bonds and other types of investments that you own, but studies show that a balanced security portfolio can have a bigger impact on long-term performance than individual stock picking.
Security Portfolio Basic Rules
The good news is if you follow a few basic rules, asset allocation can be smoother and less time consuming overall. Knowing when you will need the money should help you get the start you need.
Volatile Investments
When you’re saving for a long-term goal, time can smooth the returns of volatile investments. Volatility is great when your holdings are going up and scary on the way down. A long-term perspective helps when you own more volatile assets, such as small-cap stocks or commodities. Retirees or anyone living on a fixed income need to worry about the damage that inflation can inflict on both buying power and regular payments, from bonds, for example, or annuities. Owning commodities, Treasury Inflation Protected Securities, as well as a healthy dose of stocks, can help moderate inflation.
Risk Tolerance
All investments involve some risk, even “safe” investments like treasury bonds. If you need some money for a short-term goal and you cannot afford to lose it, put it into an FDIC-insured product such as a savings account or a certificate of deposit. Riskier assets tend to have greater returns over time, but can also have violent swings. For example in 2008, emerging market stocks fell around 50% percent and clocked in at nearly 80% gain in 2009.
Beyond Stocks and Bonds
One way to reduce the volatility of a portfolio is to add some alternative assets like commodities or real estate, which don’t generally track the markets for stocks and bonds. Commodities can also counteract inflation, because their prices typically rise when inflation picks up. If you’re risk averse then consider putting a small portion of your portfolio in a market-neutral fund. You may want to look at inverse exchange-traded funds (ETF), such as the ProShares Ultra Short S&P 500 (NYSEArca/SDS), which moves up in value as the S&P 500 moves down. Investing a small portion of your portfolio in stocks in sectors that still have value, while also adding precious metals, such as gold and silver, to your portfolio, may also be a wise play.
Here’s What Not To Do
What not to do when putting together a security portfolio. Many investors make one or more of these common asset allocation mistakes: don’t follow fads. Focusing on fads can get you in trouble. Chances are an investment fad has already produced high returns before you heard about. Don’t be satisfied. Taking the “set-it-and-forget-it” mentality too far can be costly. If you don’t review your portfolio regularly (annually, quarterly or monthly, just decide) then you could wind up with an asset allocation that is vastly different from what you set out with.
Create Your Security Portfolio
Landmark Capital is here to help create a proud security portfolio. We have been in the business of Our clients have found that working with one of our industry experts increases their understanding and helps them to make informed investment decisions. Trusted, reliable, and delivering on our promise, Landmark Capital can educate, strategize and secure the right assets for you based upon your investments needs. Give us a call! 602.287.9200