Dale Ishida Suezaki and Taylor Easley are financial advisers at Morgan Stanley, 329-7979.
As many investors have learned the hard way in recent years, building wealth while preserving principal is not about riding the hot sectors or even picking the “best” investments. It’s about investing regularly over the long term with a diversified portfolio.
Finding the right asset allocation for you
A diversified portfolio begins with three main asset classes: stocks, bonds and cash. Each of these performs differently in different situations. They also offer different levels of risk and potential returns.
When it comes to building your own portfolio, your investments should reflect your age, your individual needs and goals and the overall economy. But since these factors are fluid, allocating your assets is truly an ongoing process. You should review your asset allocation regularly to make sure it’s still in line with your current situation. Also, it is important to remember that asset allocation and diversification do not assure a profit or protect against a loss.
Stocks
Stocks represent shares of ownership in the companies that issue them. As between stocks, bonds and cash, stocks historically have proven to be the best opportunity for long-term growth (rather than short-term income). Though more risky than bonds or cash, stocks have produced higher average annual returns over time and generally offer the best long-term potential hedge against inflation. It should be noted though that past performance does not guarantee future results.
Bonds
Bonds are certificates of debt issued by corporations and governments when they borrow money. In repayment for the loan, bond issuers promise to pay interest to the bondholder for the life of the bond. These interest payments can provide current income to the bondholder. At maturity, the bond is retired and the principal amount repaid. Bond prices tend to fluctuate less than stock prices, and some bonds provide income-tax-free interest payments.
Cash
“Cash” also includes taxable and tax-free money market funds, certificates of deposit and treasury bills. These are among the lowest-risk investments, but they also provide lower potential returns compared to stocks and bonds, with CDs and treasury bills fluctuating less than money markets.
This article is published for general informational purposes and is not an offer or solicitation to sell or buy any securities or commodities.
Dale Ishida Suezaki and Taylor Easley are financial advisers at Morgan Stanley, 329-7979.