The Planning Process: Investment Planning

Sample portfolio

Your specific investment decisions will depend on several factors: your age, tax bracket, risk tolerance, liquidity needs, investment time horizon and investment goals. In general, however, a well-diversified portfolio might include:

  • Cash Reserves for short-term needs -- checking accounts, money-market accounts, savings accounts and shorter-term CDs.
     
  • Longer-term, taxable investments that are relatively liquid, such as:
    • Stocks -- common or preferred
      • Bonds -- U.S. Government, corporate
      • Mutual Funds -- bond funds, growth funds, balanced funds, international funds
    • Tax-advantaged investments, such as:
  • Annuities -- fixed and variable
    • Qualified Plans -- 401(k), 403(b), IRAs, SEPs, SARSEPs
    • Municipal bond funds

  • Real estate -- commercial, residential
    • Tangible asset exposure through mutual funds -- precious metals funds, natural resources funds

You may want to consult an advisor regarding designing a portfolio that is appropriate for you and your risk tolerance.

Diversify beyond investments

Diversification alone may not be sufficient to protect your investments. By taking a broader view, a financial planning strategy can put safeguards in place to help protect yourself and your family.

For instance, purchasing disability income insurance provides protection for your ability to earn a living. Life insurance is another form of protection. It can help preserve your estate assets and reduce the risk that a disaster could wipe out your family's standard of living. Life insurance can also provide the necessary cash for your survivors to pay estate taxes and other expenses, or to carry on a family-owned business.

A properly planned estate can also be a part of your overall strategy. Simply having a will may not be enough. You may need to coordinate your will with trusts for your children, life insurance and estate tax planning. Estate planning can help preserve and direct the distribution of your assets after your death.

A diversified financial planning strategy will not eliminate risk or guarantee success. But it does offer an approach to help protect your assets, reduce risk and potentially grow assets over time. Talk with a qualified professional about how to put an effective financial planning strategy in place.

You've heard the old investment adage, "Don't put all your eggs in one basket." It's good advice. A diversified portfolio should be at the core of any well-planned investment strategy. While a worthy goal at any age, it's especially desirable as your net worth grows over the years. The basic purpose of diversification is to reduce risk and volatility. It's primarily a defensive type of investment policy. Depending on your investment goals and tolerance for risk, your strategy may emphasize one type of investment over another. But overall, your investment plan should be diversified. That's because no single type of investment performs best under all economic conditions. A diversified program is capable of weathering varying economic cycles and improving the trade-off between risk and return. Of course, diversification cannot entirely eliminate the risk of investment losses. Diversification offers returns which are not directly related over time and is intended for the structure of a whole portfolio to help reduce the risk inherent in a particular security.

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