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When allocating your portfolio there are three main asset classes used to develop a suitable allocation for your portfolio. They are cash, fixed income, and equity. Each plays an important role and carries a different level of risk and exposure.
There are several investment vehicles to choose from for each asset category. Not every investment vehicle listed below may be suitable for every investor and should be carefully considered before investing.
Treasuries and Savings Bonds have characteristics of fixed income features as well as cash features.
Bonds - Corporations, local municipalities, or the US Government issues bonds to raise capital. Interest is usually paid two times a year and is considered income. Each bond type is governed by a different entity and each carries its own level of risk. There are several factors to consider when purchasing bonds. The following are just a few: credit rating of the issuer, the maturity of the bond, inflation, interest rates, taxation, liquidity, and suitability.
Types of BondsUS Government Bonds and Notes - These are debt obligations that are issued by the US Government to fund its operations and finance the federal deficit. Notes have a maturity of between 1 - 10 years, while bonds mature after 10 years. They are backed by the full faith and credit of the United States. They are exempt from state and local taxation. However, these securities do not protect against risk caused by the market or new legislation.
Municipal Bonds - Debt obligations of state and local governments and their agencies. Those who buy muni bonds are investing in public works and construction projects for the designated municipality. The interest payments received are tax favored, as the Federal Government does not generally charge taxes on these interest payments. Capital gains are still taxed at all levels. There are two types of muni bonds, General obligation muni bonds and Revenue muni bonds.Municipal Bond governing Authority - Please refer to the MSRB (Municipal Securities Rule Making Board) website and important brochure.pdf. before considering any investment into municipal bonds. Corporate Bonds - There are two main types of Corporate Bonds, secured and unsecured. Note: Bond duration correlates closely with the interest rate environment and should be considered carefully.
While the income generated from Preferred Stock may be attractive, these shares carry less growth potential than Common Stock. All of these characteristics should be considered carefully before investing in these shares. Dividends - A company that has extra capital may pay its investors a dividend. Paying a portion of their profit to shareholders is often done on a fixed schedule but can be done at any time. One investment strategy is to re-invest these dividends.
Mutual FundsProfessionally managed investment vehicle that buys a diverse group of stocks and/or bonds.
There are several important factors to consider when investing in mutual funds. Some of them are as follows: - Expense Ratios- Sales Charges- Turnover Ratios- Loads- Transaction fees- Breakpoints for possible savings Mutual fund types often play a role in the overall costs involved in buying and selling mutual funds. There are several different types. Listed below are just a few of the most common:
A Fund - You pay a commission up front (a front-end load).B Fund - Back end commissions are paid. They have a Contingent Deferred Sales Charge (CDSC). C Fund - or level load shares, you pay a commission each year. This commission never goes away. Mutual Fund CategoriesAll Mutual Funds are classified into different categories. The following is not limited to but includes these broad categories: Large Cap Equity - A fund that holds stocks in the top 70% of the capitalization of the U.S. equity market. Mid Cap Equity - A fund that holds stocks in the mid-cap range, approximately 20% of the total capitalization of the U.S. equity market. Small Cap Equity - A fund that holds stocks in the bottom 10% of the capitalization of the U.S. equity market. Sector Equity - A fund that holds stocks focused on any one industry or sector group. Allocation - Allocation funds hold stocks which attempt to provide income and capital appreciation. These funds invest in a predetermined allocation of stocks, bonds, and cash. Lifecycle funds are a common fund type that fall into this category. International Equity - A fund that holds approximately 40% or more of their equity holdings in international stocks. Taxable Bond - A fund that holds approximately 70% or more of their assets in taxable bonds. Municipal Bond - A fund that holds approximately 70% or more of their assets in municipal bonds.
Money Market - Funds that invest most of their holdings in short-term money market securities. Insurance Investment VehiclesAlthough there are many insurance investment options available, only Variable Annuities are considered an investment vehicle. Please see Capital Needs Analysis page for further information regarding insurance investments and Variable Annuities.
Risk for each category varies.
Please contact Doleman Wealth Management, LLC, for more details.
*please see below for important disclosure
Mutual Funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
All bonds carry some degree of "credit risk," or the risk that the bond issuer may default on one or more payments before the bond reaches maturity. In the event of a default, you may lose some or all of the income you were entitled to, and even some or all of principal amount invested. Other risks may include interest rate risk, inflation risk, reinvestment risk, and liquidity risk.
Investments in securities are not suitable for all investors. Investments in any security may involve a high degree of risk and should only be considered by investors who can withstand the loss of their investment. Prospective investors should perform their own due diligence carefully and review the “Risk Factors” section of any prospectus, private placement memorandum or offering circular before considering any investment.