Portfolio Diversification

Diversification, Patience, and Consistency

Presented by Beacon Financial Group

Three important factors when it comes to your financial life.

Regardless of how the markets may perform, consider making the following part of your investment philosophy:

 

Diversification. The saying “don’t put all your eggs in one basket” has real value when it comes to investing. In a bear or bull market, certain asset classes may perform better than others. If your assets are mostly held in one kind of investment (say, mostly in mutual funds or mostly in CDs or money market accounts), you could be hit hard by stock market losses, or alternately, lose out on potential gains that other kinds of investments may be experiencing. There is an opportunity cost as well as risk. 1

Asset allocation strategies are used in portfolio management. A financial professional can ask you about your goals, tolerance for risk, and assign percentages of your assets to different classes of investments. This diversification is designed to suit your preferred investment style and your objectives.  However, there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation do not protect against market risk.

 

Patience. Impatient investors obsess on the day-to-day doings of the stock market. Have you ever heard of “stock picking” or “market timing”? How about “day trading”? These are all attempts to exploit short-term fluctuations in value. These investing methods might seem fun and exciting if you like to micromanage, but they could add stress and anxiety to your life, and they may be a poor alternative to a long-range investment strategy built around your life goals. Keep in mind, there is no guaranteed strategy to accurately predict when to enter or exit the market.

 

Consistency. Most people invest a little at a time, within their budget, and with regularity. They invest $50 or $100 or more per month in their 401(k) and similar investments through payroll deduction or automatic withdrawal. They are investing on “autopilot” to help themselves build wealth for retirement and for long-range goals. Investing regularly (and earlier in life) helps you to take advantage of the power of compounding as well.

 

If you don’t have a long-range investment strategy, talk to a qualified financial professional today to determine what strategy may be appropriate for you.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

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Citations.

1 - forbes.com/sites/brettsteenbarger/2019/05/27/why-diversification-works-in-life-and-markets [5/27/19]

What are the Elements of a Healthy Financial Plan?

One of the most important things you can do for yourself and your family is to develop and stick to a financial plan. In doing so, it is strongly recommended that you consult an experienced financial planner who can help you understand your current situation, identify your goals, and put strategies in place to reach those goals. Regardless of your individual goals-whether to live a comfortable retirement, educate your children, travel the world, live a debt-free life, or leave your loved ones a significant inheritance-the foundation of any healthy financial plan must encompass strategies for building wealth and strategies for protecting your wealth.

 

Strategies to Save and Build Wealth

There are two distinctive types of savings to which a healthy financial plan gives consideration.

Cash Reserve - Establish a cash reserve for larger purchases, vacations and emergency situations, e.g., job loss, car/house repairs, etc. Your cash reserve is the money by which you live. A fully-funded cash reserve-approximately three month's salary-gives you the ability to handle unforeseen expenses and plan for the things you want to buy and do, without threatening your monthly expenses or investments. A financial planner can help you establish a cash management plan to maximize your discretionary income (after bills), prepare for emergencies, and save for the things you want.

Investment Portfolio - The second type of savings plan is an investment portfolio-the money by which you grow. An investment portfolio is absolutely essential to your meeting your long-term financial security goals. There are many factors that should be considered when establishing an investment portfolio, including how much you will need to retire, how much you expect your pension and/or Social Security to contribute, how many years until your retirement, and so on. With this information, your financial planner will help you make the right kind of investments.

 

Strategies to Protect Savings and Investments

A new transmission for your car or having to replace a leaky roof will probably not put you into financial ruin, especially if you have a fully-funded cash reserve. However, disability and death have the potential to wipe out your entire savings and retirement income very quickly. In addition to the standard insurances that most people carry, e.g., health, auto, homeowners, etc., the following types of insurances are critical to a healthy financial plan.

Life Insurance - Life insurance protects those who depend on your income - your spouse, children, etc. Upon your death, your life insurance policy will pay your beneficiary a lump sum that can replace your lost income, pay off outstanding expenses (house, car), cover funeral expenses and/or provide an education for your children. The various types of life insurances will be explored in a future article.

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Disability Insurance - Disability insurance is often one of the most overlooked forms of insurance, but is extremely beneficial when needed. Disability insurance replaces a portion of your lost income if you become unable to perform your job because of injury or illness. Many companies offer disability insurance as an employee benefit, but typically it only covers 60 percent of base salary, minus taxes. Discuss whether you may need additional coverage with your financial planner.

Long Term Care Insurance - Seven in 10 people will need some type of long term care. There are two ways to pay for long term care - either out of your own pocket or with long term care insurance. Neither personal health insurance nor Medicare will cover many long term care expenses, as many of the needed services (bathing, dressing, and eating) are not medically necessary in nature. Medicaid is the government program that covers long term care expenses, but as the payer of last resort, you will not be eligible for Medicaid until you have nearly depleted all of your income and savings.

What are the Elements of a Healthy Financial Plan?

One of the most important things you can do for yourself and your family is to develop and stick to a financial plan. In doing so, it is strongly recommended that you consult an experienced financial planner who can help you understand your current situation, identify your goals, and put strategies in place to reach those goals. Regardless of your individual goals-whether to live a comfortable retirement, educate your children, travel the world, live a debt-free life, or leave your loved ones a significant inheritance-the foundation of any healthy financial plan must encompass strategies for building wealth and strategies for protecting your wealth.

 

Strategies to Save and Build Wealth

There are two distinctive types of savings to which a healthy financial plan gives consideration.

Cash Reserve - Establish a cash reserve for larger purchases, vacations and emergency situations, e.g., job loss, car/house repairs, etc. Your cash reserve is the money by which you live. A fully-funded cash reserve-approximately three month's salary-gives you the ability to handle unforeseen expenses and plan for the things you want to buy and do, without threatening your monthly expenses or investments. A financial planner can help you establish a cash management plan to maximize your discretionary income (after bills), prepare for emergencies, and save for the things you want.

Investment Portfolio - The second type of savings plan is an investment portfolio-the money by which you grow. An investment portfolio is absolutely essential to your meeting your long-term financial security goals. There are many factors that should be considered when establishing an investment portfolio, including how much you will need to retire, how much you expect your pension and/or Social Security to contribute, how many years until your retirement, and so on. With this information, your financial planner will help you make the right kind of investments.

 

Strategies to Protect Savings and Investments

A new transmission for your car or having to replace a leaky roof will probably not put you into financial ruin, especially if you have a fully-funded cash reserve. However, disability and death have the potential to wipe out your entire savings and retirement income very quickly. In addition to the standard insurances that most people carry, e.g., health, auto, homeowners, etc., the following types of insurances are critical to a healthy financial plan.

Life Insurance - Life insurance protects those who depend on your income - your spouse, children, etc. Upon your death, your life insurance policy will pay your beneficiary a lump sum that can replace your lost income, pay off outstanding expenses (house, car), cover funeral expenses and/or provide an education for your children. The various types of life insurances will be explored in a future article.

Capture4.PNG

Disability Insurance - Disability insurance is often one of the most overlooked forms of insurance, but is extremely beneficial when needed. Disability insurance replaces a portion of your lost income if you become unable to perform your job because of injury or illness. Many companies offer disability insurance as an employee benefit, but typically it only covers 60 percent of base salary, minus taxes. Discuss whether you may need additional coverage with your financial planner.

Long Term Care Insurance - Seven in 10 people will need some type of long term care. There are two ways to pay for long term care - either out of your own pocket or with long term care insurance. Neither personal health insurance nor Medicare will cover many long term care expenses, as many of the needed services (bathing, dressing, and eating) are not medically necessary in nature. Medicaid is the government program that covers long term care expenses, but as the payer of last resort, you will not be eligible for Medicaid until you have nearly depleted all of your income and savings.

Am I Properly Diversified?

Help to reduce the risk and learn how the right mix of investments can help you achieve your financial goals.


Diversification can be easily explained with an old saying: Don’t put all your eggs in one basket.


Diversification of your investments means having the right mix of fixed assets and equity assets.


Fixed Assets vs. Equity Assets

Fixed assets (e.g. bonds, CDs) are those assets which earn a set rate of return for a set period of time. Equity assets (e.g. stocks, house, real estate) are more volatile.

There are many different types of “fixed assets” including but not limited to:

  • short-term bonds

  • long-term bonds

  • taxable

  • nontaxable

  • government

  • global

  • floating rate

 

On the equity side, again, there are numerous categories some of which are:

  • mid-cap

  • small-cap

  • large-cap

  • growth

  • value

  • International

  • emerging markets

 

For our purposes diversification means coordinating your risk tolerance with your time frames and, based upon those factors, putting together the proper investment strategy to help you achieve your financial goals.


When investing in fixed income strategies, you need to watch the interest rate environment closely. If you have all of your money in government security bonds and interest rates rise, you can lose principle - even though bonds are considered safe. Equities, on the other hand, are more volatile; they fluctuate, depending upon market situations, supply and demand, as well as the economic sectors.


Beacon Financial Group can help you minimize these risks utilizing proper diversification strategies and other sound financial planning techniques. We can show you how to reduce market downswings and help take the roller coaster ride out of your investment portfolio. We have been helping clients for over 23 years and believe that slow and steady wins the investment race.


For additional guidance, you can complete a financial profile or questionnaire which helps you list your assets, liabilities, income and expenses. Please complete the secured form on our website or print the form and mail it to us. This is the first step on your way to financial independence.


How can proper diversification help you achieve your financial goals?­­­­­­



   **Diversification does not guarantee investment returns and does not eliminate risk of loss.


Am I Properly Diversified?

Diversification can be easily explained with an old saying: Don’t put all your eggs in one basket.

Diversification of your investments means having the right mix of fixed assets and equity assets.