Broadly speaking, the above Investment Strategies are the main
categories that fit average people. As a general rule, the closer to the
floor that an object's center of gravity is the less likely it to fall
down. When a pyramid is resting squarely on its base, most of its mass
is close to the ground, so the cent re of gravity is lower. The exact
opposite is the case when you try to balance a pyramid on its pointed
end.
It is the same in financial planning. If you want to achieve financial freedom, you must be careful not to build an upside-down pyramid. It will probably topple, leaving you broke. So, financially speaking, you put the safest instruments at the bottom. In this discussion, I intentionally avoiding the issue of property investment because of the specific, and difficult to assess, risks associated with different areas and even types of property.
Right at the ground level, you want capital preservation. This is designed to maintain stable price while providing some steady stream of passive income.
Next are the income funds. As the name suggests, these are designed with the main purpose of providing an additional stream of income. There are usually financial instruments that mainly invest in interest paying bonds and stocks which pay high and regular dividends.
The third level up contains the growth plus direct personal income stock investments that yield respectable dividend rates, yet can be expected to provide some growth. Income stocks give high dividends which are a great source of passive income for the investor. But such companies generally don't grow their earnings very quickly. They are safer, but the overall return usually is lower in the long-term. Whereas a growth stock has the potential to go ballistic. But many will fail along the way. The greater the risk, the greater the promised reward. The aim of this layer is to provide both regular income and long-term growth in your investments.
And finally, at the apex, is the pure growth segment where you would buy growth stocks. Growth stocks are those that can be expected to grow their earnings very quickly from year to year. Because of this, as a general rule they tend to give out either no dividends or very low dividends. The rationale is that a growth company needs to plough back all or most of its earnings to fund fast expansion into its business. The aim of this top layer is to maximize the value of your investments over time. The younger you are, the more time you have on your side, so the greater this portion can be.
The point to note is the younger a person is, the more he needs to invest for long-term growth. And the older he gets, the more important passive income becomes.
Planning well for major financial goals and especially for retirement is particularly important in light of the ever-increasing lifespan because of better diet and other health-related habits. The need to build a large pool of passive income that will last a person several decades of retirement is becoming more and more vital. That why the 'INVESTOR RISK PROFILE' is so useful to identify strategies and asset allocation mixes that match their needs and mindsets.
It is the same in financial planning. If you want to achieve financial freedom, you must be careful not to build an upside-down pyramid. It will probably topple, leaving you broke. So, financially speaking, you put the safest instruments at the bottom. In this discussion, I intentionally avoiding the issue of property investment because of the specific, and difficult to assess, risks associated with different areas and even types of property.
Right at the ground level, you want capital preservation. This is designed to maintain stable price while providing some steady stream of passive income.
Next are the income funds. As the name suggests, these are designed with the main purpose of providing an additional stream of income. There are usually financial instruments that mainly invest in interest paying bonds and stocks which pay high and regular dividends.
The third level up contains the growth plus direct personal income stock investments that yield respectable dividend rates, yet can be expected to provide some growth. Income stocks give high dividends which are a great source of passive income for the investor. But such companies generally don't grow their earnings very quickly. They are safer, but the overall return usually is lower in the long-term. Whereas a growth stock has the potential to go ballistic. But many will fail along the way. The greater the risk, the greater the promised reward. The aim of this layer is to provide both regular income and long-term growth in your investments.
And finally, at the apex, is the pure growth segment where you would buy growth stocks. Growth stocks are those that can be expected to grow their earnings very quickly from year to year. Because of this, as a general rule they tend to give out either no dividends or very low dividends. The rationale is that a growth company needs to plough back all or most of its earnings to fund fast expansion into its business. The aim of this top layer is to maximize the value of your investments over time. The younger you are, the more time you have on your side, so the greater this portion can be.
The point to note is the younger a person is, the more he needs to invest for long-term growth. And the older he gets, the more important passive income becomes.
Planning well for major financial goals and especially for retirement is particularly important in light of the ever-increasing lifespan because of better diet and other health-related habits. The need to build a large pool of passive income that will last a person several decades of retirement is becoming more and more vital. That why the 'INVESTOR RISK PROFILE' is so useful to identify strategies and asset allocation mixes that match their needs and mindsets.
