Diversify Your Savings: Stocks, Bonds, Variable Annuity, and Bank CDs

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

Diversify Your Savings: Stocks, Bonds, Variable Annuity, and Bank CDs

It’s been said that saving all of your money in one place can be a very risky strategy. Spreading your money out, “diversifying” your savings, or having a diversified investment portfolio can help protect you from losing all of your assets in the event of a market collapse. Diversification in finance is not only about having multiple investments, but also making sure you have different kinds of investments as well.1

For example, many people like investing in mutual funds because it gives them access to a more-diversified and professional investment 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 to invest in a collection of various securities, such as stocks, bonds, and other assets. 7

Guaranteed and Non-Guaranteed Money

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. A “prospectus” is a formal document filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering that is for sale to the public.You may recognize it as a large booklet of disclosures that 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 in a bank account- is protected by the Federal Deposit Insurance Corporation (FDIC).The Federal Deposit Insurance Corporation 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 in a diversified portfolio, 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 there is a risk you could lose some or all of your money.2 With that risk in mind, let’s take a closer look at how these three most common major asset categories break down.

What Is A Stock?

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. Consult a qualified financial advisor when considering investing in stocks or if
you are wondering which stocks you should buy before you commit.

What Is A Bond?

A bond is a form of lending money to a company’s debt. In bond investments, an 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 savings bonds and surety bonds to 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 Assets

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

In the past, market conditions that cause one of the above asset categories to do well often cause another asset category to do poorly, therefore the returns of these three major asset categories have not moved up and down significantly at the same time. 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 investment portfolio, your existing 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. It’s absolutely necessary to do your research and consult with a financial professional if you need to figure how to best save and invest your money.

Call the Resource Center today or stop by anytime if you have any financial questions regarding saving for your retirement, estate planning, or for more information on how life insurance and variable annuities might be a wise investment choice. Make sure to tune into Ozark’s Live every Tuesday at 3 PM to watch Bruce touch on even more 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. 00626469

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