Alan Puzey

What's your idea of financial security?

Alan Puzey
Fairmount, IL
Wednesday, November 25, 2015

Balancing Investment Goals

Balance your investment goals

Ask investors to list their top three priorities and you’ll likely hear:á

  • Preserve capital
  • Achieve target returns
  • Beat the stock market’s overall growth

Unfortunately, these goals are not usually compatible. To either beat the market or target more than the most conservative rate of return, you’ll be risking capital. Toálower risk and preserve capital, the usual strategy is to diversify your portfolio with various asset types, which makes achieving a high rate of return difficult.

Capital preservation

If experiencing widely varying and possibly negative investment returns is not for you, preserving capital is probably the best choice for your primary investment goal. You almost certainly won’t lose money if you stay with money market funds. But safety comes with a history of low returns. In most years, you won’t beat the stock market, and you may not even beat the rate of inflation.

Another way to preserve capital is to invest your portfolio primarily in bonds or bond funds. Returns on bonds aren’t as steady as on cash equivalents or as high as on stocks over the long term, but bond investments are less volatile than stocks over the short term.

Beating the market

Your portfolio will perform like the stock market if you invest in index funds that track a broad market index, such as the S&P 500. But, you won’t be able to beat the market with an index fund, nor will you be protecting yourself against market losses.

If your goal is to earn steady returns that beat bonds and cash equivalents rather than beat the stock market, you might invest primarily in a diversified mix of stock funds—growth, income and other fund types. While good and bad years are likely and there are no guarantees, over a decade or longer period, your average annual return may be near the long-term results of the overall stock market.

Targeting results

What if you aim to achieve a specific investment return rate? If the number is high, such as 10%, you could invest your portfolio entirely in equity funds. Some years, you’ll see big gains and make or surpass your goal. In other years, you’ll get lower returns or experience losses. The higher you set your target, the more often you’ll likely miss it.

Aiming for success

The path to success starts by determining your investment objective, be it capital preservation, targeted results, or market-beating returns—or a combination that balances more than one of these. Once you plan a portfolio that furthers your goals, be prepared to stay on plan, despite short-term disappointments.

Make it easy on yourself

If you don’t have the time or interest to constantly watch the markets, I can help. With the investment professionals at COUNTRY Trust Bank«, you can have your investments professionally managed for you.áNo matter where you’re starting from, this could be the solution to your investing needs. Give me a call to discuss how easy it can be.

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