Investing is a fantastic way to make money using money. Making money work for you is the goal. Let us consider a monthly investment of $1,000 in cash as an example to demonstrate how to invest money optimally. We will distribute the funds among various investment assets and assume a medium risk tolerance. There is a readiness in our asset allocation to endure some principal loss in exchange for a greater total return. The portfolio’s asset allocation is diversified to reduce risk factors and different levels of financial market risk. The risk factors will be identified so that you may know how to manage your assets. Also read about Portfolio Management Services
The Investment Plan
1. Stocks = 55% or $550.00 (in Large Cap Growth —18.5 percent or $185.00, Large Cap Value —18.5 percent or $185.00, International Equity —18 percent or $180.00)
To optimize profits from capital gains in stock price increases and dividend income, more than half of the portfolio’s assets are in stocks. Invest in fast growth stocks is a wonderful way to match a medium risk tolerance with a larger potential gain because they have lower liquidity hazards and transaction fees. Implementing advanced financial planning tools like Elan 2 will help you manage your business.
The investment in Large Cap Growth and Value stocks will be $185.00 each (for a total of $370) to reduce financial risk because the companies have a track record. These well-established companies are also less susceptible to market changes. These investments are affected by the economic cycle, which is currently seeing faster growth than predicted. According to research from Lipper Alpha Insight, for the first quarter of 2022, over four-fifths of the S&P 500 businesses recorded earnings that were above analyst estimates. With a $180.00 investment in overseas equities, the portfolio is exposed to non-US stocks in faster-growing industrialized economies. Gains in overseas assets can compensate for nonperformance in US stocks. Mark Chaikin Prediction provides market forecasts that may be used to determine which stock investments to buy or sell.
2. Fixed Income = 30% or $300.00 (in bonds through mutual funds)
Fixed income securities account for just under half of the portfolio, diversifying the medium risk appetite and increasing the possible profit. Macroeconomic policy and geopolitical trends make fixed-income assets less susceptible to decreases. The stock market swings will be offset by this investment. Interest rate risks can be reduced by investing in mutual fund bonds that have historically outperformed projected interest rate changes. Credit and liquidity risks can be managed by diversifying the mutual funds in the portfolio.
3. Cash and Cash Equivalents = 4% or $40.00 (in savings account)
Cash is deposited in a savings account to provide complete liquidity at a risk-free interest rate. There are no transaction fees while withdrawing these funds.
4. Commodities = 3% or $40.00 (in Exchange Traded Funds)
A small part of the funds will be invested in agricultural exchange-traded funds (ETFs) to take advantage of possible gains from extraordinary macroeconomic and microeconomic events that affect farm supply. These variables could result in high seasonal returns. Commodities are riskier investments because they are susceptible to unforeseen events that are difficult, if not impossible, to predict, such as unusual climate changes, epidemics, and natural and human-caused disasters.
5. Real Estate = 3% or $40.00 (in Public Traded Real Estate Investment Trusts)
Real Estate Investment Trusts (REITs) have a lower risk profile and yield less than equities and fixed-income assets. However, because public REITs businesses must share profits to avoid company revenue taxes, dividend yields are extremely high. REITs are affected by economic cycles, and profits differ depending on the type of real estate. These forms of real estate investments also have specific environmental risks.
6. Art and Collectibles = 3% or $40.00 (in non-fungible tokens)
Liquidity risks exist owing to the diversity and originality of these assets, which are digital art that is part of the blockchain and exchanged online. Microeconomic issues, such as changes in household behavior, also have an impact on these assets. Art and collectibles may become obsolete and ineffective at any time. In some circumstances, though, the opposite may be true, as certain commodities may have the rare potential for massive gains over time.
7. Insurance = 2% or $10.00 (in Term Life Insurance)
The duration, credit, liquidity, and interest risks of this investment are all present. Beneficiaries, on the other hand, can employ the cash reward to pay off debts or cover expenses.