Asset Allocation for the Absolute Beginner
We are addressing here the beginning investor, and present a plan for beginning to invest in the stock market. We do not cover sophisticated asset switching strategies related to market timing, or consider the more complex asset categories such as precious metals, futures, currencies, or collectibles. We merely present a framework for the beginning investor to consider their investment and asset allocation among available choices.
Basic Questions
Before considering investing in stocks, each person needs to ask the following questions.
How secure is my job or other sources of income, such as my spouse 's job?
How stable is my health and that of my family?
What immediate (zero to two years) financial …show more content…
This includes homeowners insurance, auto insurance, life insurance, and HEALTH insurance. Only you can decide what is adequate based on your situation. If you are single or have grown children, you may not need any life insurance at all. A young couple with several children and one wage earner may need enough life insurance to cover several years of living expenses and/or college. Most likely, you should consider term life insurance, unless you need the enforced savings and investment offered by a whole life or other product.
If you have immediate (less than two year) financial needs, do not place money already saved for these in long term or risky investments. This money should be in extremely secure investments, where the risk of principal loss is as close to zero as you can find. Match your maturities of any bank CD 's or Treasury Bills to the date that you need the money. This money should not be in the stock market. Bear markets can last a long time (up to several years) and you do not want to jeopordize your family 's future, college education or other important goals for a bit of extra earnings on your …show more content…
When you buy one, you are betting on several things. If you plan to hold it to maturity, you are betting that inflation will not increase to a rate that would make your investment fall behind. If you do not plan to hold it to maturity, you are speculating both on the rate of inflation and the direction of interest rates between when you buy it and when you hope to sell it. If the interest rate rises by only two percent on a thirty year bond, the value of that bond can drop by thirty percent or more. This is an extremely leveraged bet, and in most cases should be left to professional speculators or people who are hedging other investments with similar
We are addressing here the beginning investor, and present a plan for beginning to invest in the stock market. We do not cover sophisticated asset switching strategies related to market timing, or consider the more complex asset categories such as precious metals, futures, currencies, or collectibles. We merely present a framework for the beginning investor to consider their investment and asset allocation among available choices.
Basic Questions
Before considering investing in stocks, each person needs to ask the following questions.
How secure is my job or other sources of income, such as my spouse 's job?
How stable is my health and that of my family?
What immediate (zero to two years) financial …show more content…
This includes homeowners insurance, auto insurance, life insurance, and HEALTH insurance. Only you can decide what is adequate based on your situation. If you are single or have grown children, you may not need any life insurance at all. A young couple with several children and one wage earner may need enough life insurance to cover several years of living expenses and/or college. Most likely, you should consider term life insurance, unless you need the enforced savings and investment offered by a whole life or other product.
If you have immediate (less than two year) financial needs, do not place money already saved for these in long term or risky investments. This money should be in extremely secure investments, where the risk of principal loss is as close to zero as you can find. Match your maturities of any bank CD 's or Treasury Bills to the date that you need the money. This money should not be in the stock market. Bear markets can last a long time (up to several years) and you do not want to jeopordize your family 's future, college education or other important goals for a bit of extra earnings on your …show more content…
When you buy one, you are betting on several things. If you plan to hold it to maturity, you are betting that inflation will not increase to a rate that would make your investment fall behind. If you do not plan to hold it to maturity, you are speculating both on the rate of inflation and the direction of interest rates between when you buy it and when you hope to sell it. If the interest rate rises by only two percent on a thirty year bond, the value of that bond can drop by thirty percent or more. This is an extremely leveraged bet, and in most cases should be left to professional speculators or people who are hedging other investments with similar