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Portfolio Investment vs Individual Investment
“We don’t have to be smarter than the rest; we have to be more disciplined than the rest.”- Warren Buffett
An asset class is a grouping of investments that exhibit similar characteristics. The four main asset classes are: Equity or Stocks, which represents a percentage % ownership of a company; Fixed Income which are debt instruments between a borrower and investors; Real Estate which is ownership of property, and Alternative Investments, which is a broad category that includes any other financial investment that does not fit the criteria of the others.
How Can We Use the Asset Classes to Our Advantage?
Diversification is a technique used to reduce risk, by allocating investments amongst various asset classes. The asset classes used should complement each other during various market events, such as Covid-19. If one asset class performs poorly over a certain period, another class may perform better over that same period, hence reducing potential losses in the portfolio and prevents the concentration of all your capital in one type of asset class.
Consider this Portfolio below:
|
Asset Ticker |
Shares Held |
Value |
|
NCBFG |
10,000 |
$1,500,000 |
|
Proven Inv. |
10,000 |
$350,000 |
|
APPLE |
500 |
USD 182,500 |
|
|
500 |
USD 571,000 |
|
Bond A |
1,000 |
$100,000 |
|
Bond B |
1,000 |
$200,000 |
Jill has $100,000 that she wants to invest at the end of the month. She however has to decide whether she will contribute to a portfolio or buy an individual stock. Jill likes companies such as NCBFG and Sagicor. She also wants to invest in the US Market. She calls her Financial Advisors at BPM Financial with her dilemma, and the conversation went something like this:
“Hi Jill, it is good to hear from you yet another month! We understand your dilemma and we are happy to let you know all our Portfolios can provide for you the solutions to your problem. With your $100,000 contribution, we will put you in a portfolio that suits your risk appetite, as well as have the necessary diversification of asset classes to hedge against risk. Let me highlight for you the advantages of Portfolio Investment vs. Individual Investments.”
Portfolio vs. Individual Investment
|
Portfolio Investment |
Individual Investment |
|
|
Diversification |
Better equipped to spread capital across the varying asset classes, reaping benefits of exposure to different markets and different currencies |
Must own a sufficient number of stocks in order to achieve adequate diversification. This is usually harder to obtain due to lack of capital, and consequently it takes longer. |
|
Income |
Able to build a portfolio that focuses on income securities, by dedicating a % of assets to dividend-paying stocks, or bonds creating a steady income stream. |
More challenging to allocate % of portfolio to income paying stocks vs. growth stocks and bonds due to lack of capital |
|
Management |
Qualified and experienced Investment Managers who do constant analyses on the markets. Does not engage in emotional investing when there are fluctuation in the market; Aims to “ Take You Higher” |
Requires more time from individual to monitor portfolio. Usually requires an extensive amount of research to decide which assets to invest in, and usually leads to emotional investing causing you to react negatively in any crisis. |
It is important to have an investment “system” in place in order to alleviate unnecessary financial stress when it comes to managing money. The idea behind developing such “system”, as opposed to doing “ad hoc” investing, is to increase your chances of success. Here at BPM Financial, we continue to do thorough analyses on companies, observing those that might provide us with sound and strong financial performances that may withstand the effects of COVID-19 and beyond. Our aim is to continue to “Take You Higher”.
Grace McLean - Financial Advisor
Call 876-926-0849 to schedule a free consultation today, towards achieving your financial goals.