You’ve got a lot of money, and you want to make your pot of money even bigger. So you consider using something called a “conservative growth” strategy. The goal is to build wealth over time, with an emphasis on “wealth preservation.”
This is where the debate starts among pundits on what is actually a “conservative growth” strategy. The basic strategy has been an allocation of 60% in bonds and 40% in stocks. But anyone paying attention to 2008 knows what can happen.
If you want to preserve money, the purest way is just to index your money to inflation and get a return on Treasury bonds. But...what's the point of that?
So you’ll see a lot of financial companies create “conservative growth funds.” And these funds charge annual fees that eat into the return. The funds basically build a portfolio of bonds and stocks.. people could have just as easily learned the strategy and built the portfolio by hand in a matter of 20 minutes. Sounds like a plug for a trading course.
Related or Semi-related Video
Finance: What is fund diversification, a...45 Views
finance a la shmoop. what is fund diversification and why is it important?
well ever hear the phrase don't put all your eggs in one basket ? yeah if you do
and there's a pothole, well, this can happen. had she put a few eggs here [woman drives car]
than another few there and then another few there well breakfast might have been
saved. well the same thing works for stocks. sorta ,put all your eggs and
shares of the newly IPO to whatever dot-com and it could be a moonshot. [chart on screen]
SpaceX IPOs at fifty bucks a share and soars to a thousand dollars a share, but
well then the Martians kill the visitors and eat their brains and the spacecraft.
oh well you were rich for at least an hour. that's something right most people [alien on flaming planet]
don't want to live such a volatile life, especially when it comes to thinking
about long-term investing and maybe even retirement. when your entire investment
portfolio is in one stock it can be a wild ride and if you're not a
professional investor it's likely that you'll get weak and sell at just the [woman types at computer]
wrong time .so instead of having to worry about timing and picking just the right
stock most investors buy a basket of stocks which are diverse. like two-thirds
US stocks one-third non-us stocks. maybe twenty percent of your portfolio is
invested in high-growth technology. ten percent is in transportation with a lot [pie chart shown]
of dividend yield. and of course there's always the one percent riboflavin. I
don't forget that. so yeah when you diversify and two or three of your
stocks take a dive, well then not all of your eggs are ruined. there are just one
or two rotten ones in the bunch while the rest are going to be used to cook [smiling man eats eggs]
one heck of an omelette.
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