Four Steps to Building a Profitable Portfolio
Investment Strategies To Learn Before Trading
Historically, there have been three primary asset classes, but today financial professionals generally agree that there are four broad classes of assets:
Halfway between the income and growth asset allocation models is a compromise known as the balanced portfolio. ... Balanced portfolios tend to divide assets between medium-term investment-grade fixed income obligations and shares of common stocks in leading corporations, many of which may pay cash dividends.
Here are 5 ways you can build a balanced portfolio.
5 Types of Investment Strategies
The major investment styles can be broken down into three dimensions: active vs. passive management, growth vs. value investing, and small cap vs. large cap companies.
What is the KISS rule? Keep it simple, stupid. -means successful investments are ones that are simple. Avoid complicated investments that are difficult to understand or explain.
Analyzing the Seven Asset Classes
Equities are generally considered the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the successes and failures of private businesses in a fiercely competitive marketplace. Equity investing involves buying stock in a private company or group of companies.
The 70/30 portfolio had an average annual return of 9.96% and a standard deviation of 14.05%. This means that the annual return, on average, fluctuated between -4.08% and 24.01%. Compare that with the 30/70 portfolio's average return of 7.31% and standard deviation of 7.08%.
Your ideal asset allocation is the mix of investments, from most aggressive to safest, that will earn the total return over time that you need. The mix includes stocks, bonds, and cash or money market securities. The percentage of your portfolio you devote to each depends on your time frame and your tolerance for risk.
The old rule of thumb used to be that you should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in stocks. For example, if you're 30, you should keep 70% of your portfolio in stocks. If you're 70, you should keep 30% of your portfolio in stocks.
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