Spreading your eggs out in multiple baskets is the only sure-fire way to mitigate risk in your retirement investment strategy. Wealth CAP is an online investment company that offers dynamic bucketing portfolios (DBPs) catered to your risk factor in order to maximize your returns with the least amount of risk. We do this by using a combination of safe investments (CDs and savings accounts), alternative investments (oil and gas and real estate), 401h plans or 401k plans, and market investments (stocks, bonds, and mutual funds). Today we will discuss the importance of market investments in your well diversified portfolio strategy. Contact us today for a free consultation!
WHAT ARE MARKET INVESTMENTS?
Market investments refer to those financial instruments that are bought and sold on a stock market, usually the New York Stock Exchange here in the United States. Stocks are shares, or pieces, of a company that you purchase. There are two types of stocks: common stock and preferred stock, the only difference being that common stockholders garner you the right to vote on issues affecting the company that you own; whereas, preferred stockholders do not have that right.
TYPES OF MARKET INVESTMENTS
- Stocks. A financial instrument that garners you the right to a proportionate share of the stock that you hold in that company, which can include dividends.
- Bonds. Bonds are portions of government, corporation, or other financial debt that you can purchase. You receive regular coupon payments in exchange for purchasing the debt, plus the principal value once the bond matures. There can be bonds, bills, notes, and certificates of deposit.
- Mutual funds. Mutual funds are pooled money from investors to invest in a group of securities, which is managed by a fund manager. A mutual fund is the quintessential diversified strategy as mutual funds are usually made up of stocks, bonds, money market instruments, and other forms of investments.
- Exchange-traded funds (EFTs). Exchange-traded funds or EFTs are very similar to mutual funds. They are a collection of securities, but they are tied to an index. EFTs are composed of stocks, commodities, bonds, or a mixture of investment types.
- Derivatives. Derivatives are types of stocks that derive their value from an underlying asset. These financial instruments are contracts between two or more parties. The underlying asset that determines its value most commonly is stocks, bonds, commodities, currencies, market indexes, or interest rates.
- Futures. Futures are a type of derivative that obligates the buyer to purchase or the seller to sell the agreed upon financial security at a certain date in the future no matter the price or market conditions.
For the majority of the population, stocks, bonds, mutual funds, and some EFTs are utilized for their market investment portion of their well diversified portfolio. Wealth CAP traditionally sticks to these main types as well when we are putting together a dynamic bucketing portfolio for our clients. Derivatives and futures are advanced forms of market investments that don’t add enough value to justify the added risk in our opinion for most people.
THE IMPORTANCE OF MARKET INVESTMENTS IN A WELL DIVERSIFIED PORTFOLIO
Market investments play a key role in most well diversified portfolios for many reasons.
- Market investments have historically outperformed most other investments in terms of return over the long run.
- Due to the number of stocks and bonds today, there is no limit to the diversification possibilities, including the advanced investment options such as futures and derivatives.
- Stocks, mutual funds, and EFTs have the most growth potential for the long run when compared to other financial investments.
- The growth of stocks usually outpaces inflation.
- Stock markets are designed to rise in value perpetually over time.
HOW WEALTH CAP CAN HELP
While stocks, bonds, mutual funds, and EFTs are not complicated, they do take time to learn — time most people would rather spend with their families rather than diving deep into the details of individual stocks and such. Hence, outsourcing your investment strategy is the smart way to maximize your returns while still playing it safe.
Wealth CAP is the best online investment company that can help you obtain a well diversified portfolio that includes market investments. When you partner with us, we’ll sit down with you to help you determine your financial goals, your risk factor, and what types of investments you prefer. Once we have a firm grasp on your goals, we’ll put together a dynamic bucketing portfolio tailored for you, which will help you achieve your goals. We don’t charge transaction fees like most other brokerage firms you may have used in the past; instead, we charge a low monthly fee to help manage your investments, saving you money.
Wealth CAP also offers an online education series where you can learn more about all of our investment strategies and types of investments, including market investments. Get started with us today. Call now!