As I noted in my prior Post, “Auto-Pilot Portfolios”, it is important for Investors to have some idea as to what is in their portfolios–and monitor them on a regular basis. If you work with a Financial Advisor, you should expect to have a consultation–either in person or by telephone–at least quarterly. And, of course, if you are approaching either a Life or Career change, that is a good time to update your portfolio, as well.

I will focus my time on four basic Asset Classes: Stocks; Bonds, Mutual Funds and ETFs (Exchange-Traded Funds). There are other types of investments; however, those are mostly variations or, in some cases, contrived. Remember, the more bells and whistles that you tack onto a security, the greater the chance for confusion. And, in some cases, the FA might not even truly understand exactly what they are explaining–and selling. I have always preferred the “KISS Theory”–that’s Keep it Simple, Stupid.  For the longest time, Warren Buffett said he did not invest in Technology; because, he did’t understand it.

STOCKS: should be diversified among a number of different Companies and Industries. But, as anything in the Financial Arena, things are not always as they seem. For instance, General Electric (GE) is categorized as an Industrial Company, and truly a Conglomerate. It trades somewhat with the Financial Sector, however, since roughly one-third of its earnings come from the GE Capital Subsidiary.

BONDS: can either be individual issues or owned within a mutual fund. (See Mutual Funds for Bond Funds.) Bonds (Municipal, Government or Corporates) should be spread among different industries (Corporates), States and Types (Municipals) and also be staggered by maturity. (See: Municipal Bands are Safe, aren’t They?) Remember that, when investing in any type of bonds, Prices will Rise or Fall as Bond Yields Fall or Climb, respectively.

MUTUAL FUNDS: should be diversified among different types of funds. There are many different types of funds, which invest in: Bonds (see above); Large, Medium and Small Companies; Industrial Sectors (Health Care, Technology, Health Care, etc.); Global Funds; Regional Funds (Asian, Latin America; Diversified Markets, etc.). Keep in mind that mutual funds are already diversified; so, you can achieve Diversification with just a few Selections, if you so chose.

ETFs: Exchange-Traded Funds, like regular mutual funds, are diversified; but, unlike mutual funds they trade on one of the major stock exchanges. Therefore, the ETF Prices change throughout the day, just like stocks. ETFs have many of the same selections as there are for regular mutual funds. Many ETFs are based on various Indices, meaning that you get the full range of included securities–both the Good and the Bad. There can also be hidden risks with some ETFs; because, they are leveraged (taking on more market risks than the underlying markets), and sometimes that is Inverse (going opposite the underlying market) and also with several times that risk.

Whether you work with a FA or manage your portfolio yourself, get regular reports and have your FA or Securities Firm explain them to you. You should not be shy about asking questions. Get portfolio reports that include all of your accounts–and including your spouse, if appropriate.  You can also include the full range of investments (Stocks, Bonds, Mutual Funds and ETFs) in one portfolio.


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