By Joel Barretto, CFPⓇ | via Negosentro.com |
In my last article, we briefly went over some examples of “FIXED ASSETS.” We also learned, that although your principal (original investment) is generally safe with FIXED ASSETS, its returns usually makes it difficult to combat taxes and inflation over time. Therefore, it would be prudent to diversify your assets.
Like fine dining with good wine, a good pairing for FIXED ASSETS would be EQUITY ASSETS. To review from “My Investing Guide for Dummies Part I” article, EQUITY ASSETS are monies you invest, where the growth of your assets will rely on supply and demand factors of the economy. This asset class can be quite broad and complicated compared to FIXED ASSETS, but I will attempt to simplify this for you.
First of all, it is good to note that although the historic returns have proven better than FIXED ASSETS over the long term, EQUITY ASSETS carry a certain degree of risk to your principal. Therefore, it is important that you perform proper due diligence prior to investing in these type of assets. Simply looking at historic and projected returns, does not constitute proper due diligence. So make sure you do your homework.
Secondly, you will need to know the degree of risk you are willing to take, as you invest in EQUITY ASSETS. For example, an individual stock of a small startup company in an emerging country such as the Philippines (although the potential returns may be attractive), would be a lot riskier than that of a large and stable company in a developed country like the U.S.A.. So you need to ask yourself if the risk is worth it, and how much of your funds you are willing to put at such great risk.
Thirdly, diversify diversify diversify! There is no such thing as a sure thing in the world of EQUITY ASSETS, so make no mistake. Don’t put all your eggs in one basket. Through proper diversification, you will not only better manage your risk, but your returns as well. Here is an example of a diversified portfolio for a moderate risk investor (please note that this is only an example and may not be deemed as investment advice, consult a professional wealth manager for proper investment advice according to your individual financial profile):
Joel Barretto, CFP sold his financial planning practice in Irvine, California U.S.A. to promote financial literacy and awareness in the Philippines. He is a respected Certified Financial Planner practitioner with over 24 years of experience in helping people optimize, manage and protect their wealth.
He is a public speaker and lecturer on a variety of financial planning issues and strategies. With a passion for entrepreneurship, Joel dabbles in venture capital projects and mentors up and coming entrepreneurs on growing their start-up companies. He is a 2nd degree black belt in the martial art of Kempo and enjoys performing and directing stage musicals for community fund raisers. You can reach Joel at firstname.lastname@example.org.