Investor Guide to Balanced Financial Growth. Investment Risk and Return by Asset Class.

BALANCED FINANCIAL GROWTH

A sound plan for achieving financial security requires balanced financial growth. In seeking balanced financial growth, the investor must continually evaluate risk and return. It is said that risk and reward go hand in hand. An investment providing the opportunity for higher returns will generally involve higher risk. Conversely, an investment offering lower returns will generally involve lower risk. In seeking higher returns, only the individual investor can determine exactly how much risk to take. The higher on the investment pyramid, the greater the risk . . . the lower on the investment pyramid, the lower the risk.

Cash reserves and equivalents provide a financial cushion for emergencies, repairs, and other unexpected cash needs. Typically, this base will include money market accounts, life insurance cash values, regular savings, and certificates of deposit. Adequate health, property, and casualty insurance is also essential to provide protection from financial disaster.

Equity assets can be purchased if the investor’s primary objective is to achieve capital appreciation. However, it is important to understand that the market value of these investments can go down as well as up, and rates of return can vary, even after the investments are purchased. Stocks, mutual funds, and variable annuities are all examples of equity assets found in many investment portfolios. Some equity assets may provide current income, while others will accrue income or reinvest earnings with the expectation of realizing greater appreciation.

Income assets should be considered if the investor’s objective is to obtain income, as opposed to growth. Some investments will provide immediate dividends or interest income; others will accrue earnings until maturity. A variety of debt assets are available with many different characteristics.

Income funds offer investment management with the objective of providing maximum income consistent with security of principal. Fixed dollar annuities pay a guaranteed and stable income no matter how long a person lives. Corporate, municipal, state, and federal bonds are issued in a variety of forms and maturity dates.

Tangible assets are tax-advantaged investments that involve the greatest risk. Because of this, they are for the sophisticated investor who has already established a firm financial foundation and is interested in tax deductions providing the opportunity for speculative profit. They include real estate ventures, research and development partnerships, oil and gas partnerships, farming, cattle and coal operations, and leasing arrangements.

Investment Risk and Return by Asset Class

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