Basics

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Station 4 - Managing your investment strategy:
Conservative || Aggressive || Balanced

What type investor are you or should you be? The ABC’s of investment strategy are Aggressive, Balanced, and Conservative. How you want to invest depends on many things: how much money or percentage of savings you can invest; how much risk you can afford; how much time you have to invest before retirement; and what your goals are. Your financial situation and goals will change with time so it is always a good idea to reevaluate your investment strategy every year or so to be sure it is performing in a way that will help you meet your goals. If you need information about investing, please visit the Financial Industry Regulatory Authority (FINRA) at http://www.finra.org/InvestorInformation/index.htm for help with smart investing.

An aggressive investment strategy is most appropriate for investors with a lengthy period of time to invest or investors who are willing to assume more investment risk. An aggressive investor is willing to accept market swings, and seeks a higher potential return on his or her investments. An allocation model weighted heavily towards stocks is considered aggressive; and investing a high percentage of resources in high yield but risky equity securities and a low percentage in safer investments such as debt securities. This strategy incorporates portfolio management and asset allocation designed to achieve maximum return. It places a high percentage of investable assets into equities rather than safer debt securities.

The advantages of an aggressive investment strategy is greater potential for gain through long-term capital growth and a higher return over investment. The disadvantages include greater risk, high volatility in asset value, difficulty in estimating the return and the need of active money management. Aggressive investments are best as long-term returns and not advisable for the investment of monthly earnings.

Aggressive Investing Options:
* High Growth Companies
* Small and Mid Cap Equities (Stocks)

A conservative or defensive investment strategy is often appropriate for investors nearing retirement; investors who are uncomfortable with the stock market or higher risk investing; beginners, and those with little time to manage a portfolio. This strategy focuses on capital preservation and moderate growth. It places a high percentage of investable assets into lower risk securities such as cash, bonds, fixed-income, money market securities, and blue-chip or large-cap equities.

The advantages of a conservative investment strategy are minimized risk of losing capital, better planning of investments, generally predicitable and steady income, and use of risk-minimizing practices like close stop-losses. The disadvantage of this strategy is that the rate of return my not outpace inflation.

Conservative/Defensive Investing Options:
* Savings Accounts
* Certificates of Deposit
* Cash
* Bonds
* Money Market Funds
* Blue-chip Equities
* Large-cap Equities
* Treasury Notes
* Conservative Stocks (undervalued, less volatile, steadily growing and offer reasonable dividends)

A balanced investment strategy is most often chosen by investors who want to maintain their principal, but who also realize that in order to receive higher returns they must also assume some risk. A balanced may not be comfortable with market drops but understands that higher long-term gain will come from holding a steady course. A moderate allocation model for a balanced investment strategy combines both high-risk (equities) and low-risk (bonds) investments.

The key to a balanced investment strategy is in the diversification and management of the portfolio. The larger portion of portfolio allocated can be slightly aggressive or defensive, but the portfolio size must be fairly large to allow for enough diversification. A balanced investment strategy is best suited for investors with five or more years to invest and those with some tolerance for risk.

Balanced Investing Options:
Low-risk, low-return:
* Treasury Notes
* Bonds

High-risk, high Return:
* Equities
* Mutual Funds

Balanced portfolios may also include real-estate, money market, cash, precious metals, etc.