Investment styles
I just want to start this article with a check-in. How are you feeling? The market is down, I’m reading the worst market start since the 70s, and if you are in my age bracket, this is something we have never experienced. There are talks of recessions, inflation, stagflation, bankruptcies, lions, tigers, and bears, oh my! First, some insight we are in a bear market (a market decline of 20% or more); this decline is a result of the Fed’s laser focus on taming inflation by raising rates is slowing the economy. As rates rise, borrowing costs for individuals and businesses rise, growth slows, consumer demand declines, and operation costs increase.
With all that said, bear markets are temporary and followed by bull markets (price rises), but no one knows how long it will be, how painful it will be, or which investments are safe or best to invest in. I have previously listed some ways to analyze stocks by looking at the earnings per share, cash flow, risk, and even different commodities you could buy; next I want to get into strategies.
There are three basic models most asset managers suggest to their clients, and the strategies are easy to explain. While usually marketed by age, they are also good to think of as risk profiles.
1) Conservative, usually for older or risk-averse investors. This investor has a stability focus, with most of their assets in bonds because they are focused on capital preservation and steady payouts.
2) Moderate, usually a middle-aged investor or one trying to move to more stable growth. Their assets are mixed fairly evenly between the stocks and bonds.
3) Aggresive, A younger investor or when with a higher risk profile than other investors. This investor has a growth mindset, with most of their investments in stocks expected to appreciate over the long term.
There is no wrong choice (but there is a reason they are usually broke down by age), but you should figure out your risk profile and what you need your investments to do. Are you focused on wealth accumulation or capital preservation? How much longer do you plan to work ,and how long do you need the money to last? The right investment style and focus can help you frame that. Good luck out there, and check out my other articles.
(I am not a financial planner, and you should do what is best for yourself.)