Your IRA is not an investment. Your mutual funds are not investments. Neither are your 401(k)s or ETFs.
Now before you start feeling like I just pulled the rug from under you, let me explain. Rather than actual investments, they function as ways to own investments.
For example, you own an IRA, the IRA is invested in a mutual fund, and that mutual fund purchases stocks. You are invested in stocks, even though you are several steps removed from those stocks.
So what are investments?
Investments fluctuate in value, generate income or both. Investments include:
- Bank accounts
- Money market funds
- Real estate.
It's important to know how much of your portfolio is in each type of investment (stocks, bonds, etc.), regardless of how the investments are owned (directly or through a retirement account, mutual fund, etc.). That's why portfolio reviews are important. A review helps determine whether the portfolio is appropriate for you:
- Does it match your risk profile?
- How likely is it to generate the growth needed to fund financial goals?
- How volatile is it expected to be?
- Is the liquidity sufficient for your needs?
Portfolio reviews can also show:
- The percentage of stocks by size (large, medium and small companies), value or growth and international stocks by region;
- Bonds by type (US Treasury, municipal, corporate, foreign), default risk, maturity and interest rate risk;
- Overlap among different accounts, mutual funds and ETFs;
- Estimated historical performance;
- Expected volatility.
Since the review process can be difficult and time consuming, many individuals opt to hire a financial planner to do it. A financial planner can also recommend changes to the portfolio to better match your needs or current market conditions.
For example, a portfolio that I recently reviewed did not take into account the client’s tax situation and lacked diversification. All the bond investments were municipals, which offered my client little or no advantage because of his low tax rate. The stocks also lacked diversification, with low percentages in small, mid-cap and international stocks and no real estate or commodity mutual funds or ETFs.
Arthur Stein is a certified financial advisor with over 20 years of experience in financial planning, investments and insurance. His firm offers a portfolio review service dedicated to helping consumers take a critical look at their existing investment portfolios.
For more information about portfolio reviews, click here or contact us directly (301-377-9407 or arthursteinfinancial.com).
The presentation is for educational purposes only. To learn more about the strategies mentioned and if they are suitable for you, consult the appropriate professional before implementing. Tax laws can change at any time.
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
Keep in mind that:
- Past performance is no guarantee of future performance;
- Investments involve the risk of loss of principal and earnings;
- Mutual funds, including money market funds, ETFs, etc. are not guaranteed in any way by the US Government, the FDIC, a bank or anyone else.
- “Average annual return” evens out variations in the actual year-to-year returns.
- Both stock and bond mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
- None of the information provided by Arthur Stein is necessarily relevant to anyone’s particular situation. Situations differ among individuals and you should not assume that these generalizations or information apply to you.
- Investments mentioned may not be suitable for all investors.