Stocks, Bonds, Variable Annuity, or Bank Cd- How Should I Diversify My Savings?

 In Financial Planning, Insurance Advice, Ozarks Live, Productivity, Tips

Stocks, Bonds, Variable Annuity, or Bank Cd- How Should I Diversify My Savings?

It’s been said that having all of your money in one place can be a very risky strategy. Spreading your money out can help to protect you from losing all of your assets in the event of a market collapse. Diversification is not just about having multiple investments, but making sure you have different kinds of investments as well.1

Many people like investing in mutual funds because it gives them access to a more diversified and professional portfolio, usually at a lower cost than other investment vehicles. Mutual funds can be explained as a pool of money from many investors, that is used by a company to invest in various securities, such as stocks, bonds, and other assets. 7

Ultimately, there are two types of money, guaranteed and non-guaranteed. The easiest way to differentiate the two, is that non-guaranteed money is anything that uses the term “variable” and/or requires a prospectus, which is a formal document filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering for sale to the public.You may recognize it as a large booklet of disclosures, you receive in the mail each year.

Non-guaranteed money fluctuates with the market- leaving your savings exposed to losses, while guaranteed money, (let’s say a bank account- is protected by the FDIC (Federal Deposit Insurance Corporation). The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress to maintain stability and public confidence in the nation’s financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, making large and complex financial institutions resolvable, and managing receiverships. 6

In order for you to successfully spread your money out, it’s critical to do your research on investments. The three major asset categories are stocks, bonds, and cash. If you intend to purchase any type of investment, it’s important that you understand beforehand that you could lose some or all of your money.2 Let’s take a closer look at how these three most common major asset categories break down.

Stocks

A stock is a type of investment that buys an ownership share in a company. Public companies use the stock market exchange to sell their stock, and anybody is able to purchase one. The volatility of stocks makes them a very risky investment in the short term, but they also have the potential to reap higher rewards than other assets. 

Bonds

A bond is a form of lending money to a company’s debt. How it works is the investor lends a business money for a set period of time, with the promise of repayment of their investment plus interest. There are several different types of bonds which range from Government or Municipal Bonds to Junk Bonds.  A city may sell a bond to pay for a new bridge or sports complex.  Although bonds are generally considered safer than stocks, they do still carry risk.

Cash

Cash can be things such as savings deposits, certificates of deposit, treasury bills, money market deposit accounts, and money market funds, and is considered the safest form of investing, with generally the biggest risk being inflation risk.

In the past, market conditions that cause one asset category to do well, often cause another asset category to do poorly, therefore the returns of the three major asset categories have not moved up and down significantly at the same time. Therefore, by investing in more than one asset category, you will help to reduce your risk of losing money.2  

If you don’t include enough risk in your portfolio, your investments may not earn a large enough return to meet your goals. 2 That is why determining your asset allocation is the one of the most important decisions that you will make regarding your goals and your future, therefore it’s absolutely necessary to do your research and consult with a financial professional if you need to.

Call our office or stop by anytime if you have any financial questions, we want to be your resource. Make sure to tune into Ozark’s Live every Tuesday at 3pm to watch Bruce touch on important and relevant financial topics.

Sources:

1. https://www.nolo.com/legal-encyclopedia/how-diversify-investments-easy-rule-30216.html

2. https://www.investor.gov/additional-resources/general-resources/publications-research/info-sheets/beginners%E2%80%99-guide-asset

3. https://www.nerdwallet.com/blog/investing/what-is-a-stock/

4. https://www.nerdwallet.com/blog/investing/what-is-a-bond/

5. https://www.investopedia.com/terms/p/prospectus.asp

6. https://www.fdic.gov/

7. https://www.investopedia.com/terms/m/mutualfund.asp

We are not permitted to offer, and no statement contained herein shall constitute, tax or legal advice. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation.  Investment advisory services offered only by duly registered individuals through (AEWM). AEWM and The Resource Center are not affiliated companies. This content is designed to provide general information on the subjects covered. It is not intended to provide specific investment advice and should not be construed as advice designed to meet the particular needs of an individuals situation.  169368

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