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Investment (section 1)
Any homebuilder will tell you
that a good foundation is required for stability.
Investing is similiar to home building in the sense that your style, preferences and experience will dictate the end result.
However, when evaluating investments, the wide array of choices can make one feel a little overwhelmed. Since the popular
media tends to emphasize performance data, it’s easy to lose sight of the basic principles for building and maintaining
an investment portfolio.
Too often, choices may be based
on an oversimplified understanding of objectives. Thus, it’s important to consider individual factors such as risk tolerance,
liquidity needs, income requirements and anticipated holding periods in order to build a portfolio that is consistent with
your overall objectives.
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Risk tolerance
refers to your comfort zone
regarding market
volatility. For example, while some individuals may worry about daily or weekly price fluctuations, others will not. You’ll need to determine what types of investments are compatible with your "comfort
zone."
Liquidity is the ability to readily convert
an
investment into cash without loss of principal. For example, money market funds are considered to have great liquidity due
to there ability to maintain a fixed value of one dollar per share. However, an investment in a money market fund is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve
the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
Your strategy should take income requirements
into consideration. In
particular, the timing and method by which income can be generated becomes paramount. Effective planning begins
with an understanding of the various needs and on what timeline they will occur. Then consider, which vehicles are
suitable to meet those requirements.
Generally, the longer the anticipated holding period
the more risk you may be able to assume, because the historical long-term trend of the market has the potential to overcome short-term declines. However, do not abandon your personal comfort level just because you have
a longer investment time frame.
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Investments make periodic
taxable distributions (as cash or reinvested dividends), and selling an investment is considered a taxable
event when held in a taxable account.
Although individual tax concerns vary, they should be an important part of your overall strategy. For example,
if you have a long time horizon, moderate-to-high risk tolerance, and minimal short-term income requirements, you could minimize
tax exposure by investing in a mutual fund that makes minimal annual distributions and holding the fund indefinitely.
Generally,
reasons for selling an investment
depend on whether
or not it has underperformed relative to its peer group or something has changed within your set of personal factors. That
is, any change in risk tolerance, liquidity needs, income requirements, anticipated holding period or tax exposure should
trigger a review of portfolio suitability.
Bear in mind that past performance is not indicative of future results. In addition, investments
can be redeemed for less than your original purchase price. The bottom line... your portfolio should reflect individual circumstances
and be monitored on a regular basis.
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securities offered through
Quest
Capital Strategies Incorporated
23832
Rockfield Boulevard, Suite 130, Lake Forest, CA 92630
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