The stock market is seeing an upward trend in blue chips and they are currently at their peak level since December 2007. The months of August and September have seen small-cap stocks advance by 3.6% respectively in each month; which is a very good sign. The NASDAQ has reflected the gradual incline in the stocks; it is up by 20% this year.
The situation presently looks good enough to evaluate one’s investment portfolio. If a market correction were to emerge now, the portfolio should not contain susceptible stocks that could render your capital money valueless or that will lower its value. At the same time, do not expect that all your investments will yield profits; some might just remain steady.
One’s portfolio can have the following class of assets: cash, fixed income and equities. An excess of cash in one’s portfolio could hamper the chance in a stock market rally, while an excess of equities implies there are more chances of one being vulnerable to selling. Experts recommend that if one expects maximum returns on one’s investments, an amalgamation of asset allocation, diversification and small-cap stocks may be the key to a wise investment strategy. For probable weaknesses in the stock market, hedges in the form of ‘Put options’ can be used.
If one expects more profits or returns, one must be ready to take more risks. Of course, the high returns are not guaranteed; in all probability, one may end up losing the capital invested! But one can increase the potential for growth by investing in penny stocks and micro-cap stocks too; though the risk factor is also increased.
For those investors that are close to the age of retirement, there ought to be more of fixed income and less of equities. For the younger generation, it can take risks and hence equities can be in larger proportion than fixed income. In general, the percentage of fixed income as investments should be numerically one’s age. For a sixty year old, an ideal investment strategy would be to put 60% of his assets in fixed income and 40% in equities. Similarly for a 26 year old, 26% of the assets in fixed income and 74% in equities would be a wise asset allocation. When one adopts such an investment approach, one can expect maximum returns and also the possibility of losses.
So if you are a cautious investor, big cap-stocks and blue chips are safer options of investments. With a low risk factor, many of these companies are known to provide steady income and hence peace of mind to one who wants to sleep tight at night.
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