Making financial investments can seem like a guessing game, but uncertainty is usually less likely if your financial portfolio is very diverse. Let’s take a look at some of the different asset classes, and why a strong portfolio usually includes several types.
Table of Contents
Bonds
A bond is a debt security whereby you lend money to an issuer (which is often a company or federal agency), and in return, are provided with a bond that guarantees a specified rate of interest during the life of the bond. Once the bond is fully matured, the issuer pays its face value. The most common risk associated with bonds is tied to interest rates. If interest rates rise, a bond’s value falls. However, by buying a bond, a holder is assured a fixed rate of return for a designated period. If they wait until the bond reaches maturity, there is a greater likelihood of a higher return on investment.
Stocks
Stocks allow you to own a portion of a publicly traded company. There are common and preferred stocks. The S&P 500 and the Dow Jones Averages track common stocks. Stock values go up and down depending on how they are traded. People who hold common stocks can vote on matters related to the corporation.
Conversely, preferred stocks have variable values like common stocks, but similarly to bonds, they always provide fixed payments. Because of that, most people who have preferred stocks decide not to sell them.
Stockholders can see a return on investment when companies pay dividends, or periodic payments distributed on a per share basis. Furthermore, stockholders may profit by buying a stock for a low price and selling it once the stock is more valuable. There is a relatively high level of risk associated with stocks, because their value can be very dependent on economic conditions, or the associated company’s prosperity.
Cash Equivalents
Cash equivalents are a low-risk, low-return type of short-term investments. They include money market accounts, and highly liquid investments, such as U.S. Treasury bills.
Commodities
Foreign currency, gold, and emissions credits are three examples of commodities. A commodity must be standardized, usable upon delivery and have a price that’s variable enough to justify creating a market for the item.
Buyers and sellers trade commodities on the spot market (where transactions are completed immediately based on current prices), or on the future market, (where a buyer purchases an obligation to receive a specific amount of the commodity on a specific date for a certain price). Both the potential risk and return, for commodities, is extremely high. Only a relatively small amount of investors gets involved in the commodities market, but that’s often because commodities are misunderstood.
Real Estate
Investing in real estate involves selling, buying, renting or managing properties for the purpose of profiting. The amount of risk involved can be linked to return on investment, so it’s sometimes necessary to take bigger risks to get greater rewards. Economic conditions in the nation, or specific regions, can also affect risk. However, the prospect of a higher return on investment rises when an investor is well educated about possible risks and takes steps to mitigate them.
What Does it Mean to Have a Diverse Portfolio?
Asset class diversification means having a variety of types of assets in your portfolio, such as those described above. The idea is that by diversifying your portfolio, you are limiting the potential damage that could occur if a single asset performs poorly. The makeup of investment portfolios varies greatly depending on things such as your age and investment goals.
Unfortunately, some investors hire stockbrokers that don’t have their best interests in mind and make unnecessarily risky decisions related to their clients’ portfolios. If you’ve already experienced a crushing investment loss, and one that was specifically due to broker misconduct, the investment professionals at Cold Spring Advisory Group can help you start to recover.
The Basics of Broker Misconduct, and How to Begin Recovering From a Loss
Unscrupulous stockbrokers typically take advantage of the fact that their clients are not financial experts. Broker misconduct relates to placing clients in unsuitable investments that often cause devastating losses.
If you suspect you have been victimized by broker misconduct, get in touch with a team of people who can investigate your situation. When you get assistance from the Cold Spring Advisory Group, you will benefit from the knowledge of former brokers and branch managers who collectively have decades of experience to offer.
The process begins with a detailed analysis to identify whether or not you have a claim. This consultation is free. Other available services include investment forensics, case evaluation and preparation, and group claims. If you decide to move forward with pursuing your case, there are no hourly fees and the attorneys work on a full contingency basis. The retainer fee includes the cost of filing fees, plus expenses associated with an arbitration panel and expert witnesses.
To get an idea of the authoritativeness possessed by associates of the Cold Spring Advisory Group, take a look at the company’s newsletter archive here. Otherwise take the first step in getting back on your feet after suffering from potential broker misconduct and get an experienced team on your side by contacting the company today.