Sure, some people make it big in the stock market; but, isn’t that a matter of luck . . . like striking it rich in a gambling casino? Aren’t stock market bonanzas just as rare and risky as rolling the dice in Reno or Vegas?
Fearing too much risk, some folks put all their extra cash in bank accounts for a fraction of what they might have earned in the market. If they select a wide range of investment types, however, investors can lower overall risk.
When some investments plunge, others stay strong.
Investing in different industries is the best bet.
Asset allocation is the key to managing risk in the stock market Managing risk through asset allocation means that investors choose a good mix of investment types vs. “putting all their eggs in one basket.” Since companies vary in performance, selecting a wide range of businesses and industries to invest in makes all the difference between success and failure. Common market sectors include:
Consumer Goods. Brick-and-mortar and e-commerce-based retail companies make up this category, along with hotel and restaurant stocks.
Energy. Companies involved in the production of oil and gas, coal and uranium. The energy sector also includes alternative energy, such as solar and wind power that are subsectors all on their own.
Financials. Sectors include publicly traded banks, insurance companies, investment brokerages and financial services companies like PayPal.
Health Care. This industry includes hospitals, other healthcare providers, specialty medical device and equipment manufacturers, drug companies and biotech companies.
Industrials. Manufacturers that produce capital goods, such as industrial machinery, electrical equipment, construction equipment, machine tools and robots, automobiles, aircraft, ships and computers.
Natural Resources. Companies engaged in mining, logging and lumber production, refining raw materials, such as lumber, steel or metals like copper and aluminum and even chemical companies.
Real Estate. Real estate sales and management and real estate investment trusts make up this category.
Technology Companies involved in information technology (IT), anything related to the internet and high-tech devices, including everything from phones to computer hardware, software and semiconductors.
Utilities. Electrical power, natural gas, water transmission and distribution.
Vanguard research reveals that 91 percent of a portfolio’s long-term return on investments can be traced to versatile asset allocation . . . or how well people spread their investment dollars over many of these sectors.
Manage Your Money . . . financial tips from:
AAM Fee-Only Financial Planning & Investment Advisory LLC
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Ronald Van Surksum, CFP
4555 Wilson Ave SW – Suite 2 Grandville, MI 49418
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