Investments in common stocks have proven to be the best long-term protection against inflation. Numerous convincing studies have concluded that proper asset allocation is responsible for more than 90% of the return for individual portfolios. Asset allocation is the process of determining which classes of assets to invest in. Dividend reinvestment plans are an excellent way to improve returns.
Many investors are apprehensive about the ups and downs of the stock market and want a “safer, less-risky investment.” They believe the safest investments for them, as conservative investors, are insured bank accounts, CDs, and United States Treasury bills. But the fact is this: These investments are not designed for growth or inflation protection; they are secure only in that you will be guaranteed return of your principal.
Stocks usually perform better than bonds over the long run even though their value tends to fluctuate more over the course of any given week or month or year. There are various types of stocks designed to meet the needs of all investors: conservative, moderate and aggressive.
- Blue-chip stocks comprise large, well-established corporations that have more predictable earnings. Ironically, these are companies that have been reducing their work forces to try to become more globally competitive.
- Growth stocks are more volatile than blue-chips, but offer higher potential for appreciation.
- Small company stocks have the greatest risks and potential for appreciation.
You can offset your,risk by the following:
- diversifying among several classes of stocks
- having proper asset allocation
- staying invested over the long run in spite of temporary down markets
- being diversified in your employer sponsored 403(b) or 401(k) plan.
Value Line and Morningstar are rating services that, respectively, publish comprehensive one-page reports on common stocks and mutual funds. These reports are usually available in your local library or from your brokerage firm. (Question 71 to 88)
Many investors are apprehensive about the ups and downs of the stock market and want a “safer, less-risky investment.” They believe the safest investments for them, as conservative investors, are insured bank accounts, CDs, and United States Treasury bills. But the fact is this: These investments are not designed for growth or inflation protection; they are secure only in that you will be guaranteed return of your principal.
Stocks usually perform better than bonds over the long run even though their value tends to fluctuate more over the course of any given week or month or year. There are various types of stocks designed to meet the needs of all investors: conservative, moderate and aggressive.
- Blue-chip stocks comprise large, well-established corporations that have more predictable earnings. Ironically, these are companies that have been reducing their work forces to try to become more globally competitive.
- Growth stocks are more volatile than blue-chips, but offer higher potential for appreciation.
- Small company stocks have the greatest risks and potential for appreciation.
You can offset your,risk by the following:
- diversifying among several classes of stocks
- having proper asset allocation
- staying invested over the long run in spite of temporary down markets
- being diversified in your employer sponsored 403(b) or 401(k) plan.
Value Line and Morningstar are rating services that, respectively, publish comprehensive one-page reports on common stocks and mutual funds. These reports are usually available in your local library or from your brokerage firm. (Question 71 to 88)
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