Maintain Your Balanced Investment Mix

Joseph F. Lagowski

Physician's Money Digest, November15 2003, Volume 10, Issue 21

Fear of losses has left many physician-investors wondering how tomanage their portfolios. It isimportant to be aware of both potentialdeclines in the value of your portfolio andinflationary risk (ie, the possibility thatyour investments don't return enough tokeep up with inflation).

Understand Diversity

While it can be challenging to find theright balance of stocks, bonds, and cashfor your account, there are a few basics toconsider. First, you should think aboutwhat your financial goals are. Next, considerthe amount of time you have to preparefor those events and how much riskyou're comfortable with. These factorswill help determine what percentage ofyour portfolio should be in each type ofinvestment. Your financial consultant canbe a good guide in helping to determinethe right mix for you.

Once you have determined the percentageof stocks, bonds, and cash foryour portfolio, look more specifically atthe investment types and determine therisks associated with them.

• Stocks. Each type of stock has aunique risk and reward potential. Diversifyingyour holdings is critical. As youplan your stock portfolio, determininghow many stocks, what quantity, andwhich companies you should hold can bedifficult, but it isn't impossible. Having agood mixture—ideally between 20 and30 different stocks, in 6 to 8 differentsectors—can help reduce some of thevolatility of your portfolio.

Note:

• Bonds. Diversification of bondholdings is also important. There are 3primary bond types from which tochoose: government (eg, US Treasurysecurities), corporate, and municipal. Each of these fixed-income investmentswill have different terms (ie, timesto maturity) and yields (ie, interest rates).Yields typically vary depending on thetype of bond and the amount of riskassociated with the bond.

• Cash. The cash portion of your portfoliois often considered the most stablebecause it typically returns your originalinvestment to you. Cash includes investmentslike CDs and US Treasury bills.

Make Needed Adjustments

Because the value of your investmentscontinually changes, you may need toadjust your investment mix to make sureyou're still exposed to the right amountof risk. For example, a decline in thestock market may mean your percentageof assets invested in stocks declines from70% to 60%. This could present a goodbuying opportunity for stocks to returnyour portfolio to its original percentagesof stocks, bonds, and cash.

Remember:

Maintaining balance in your portfoliois important. Just because you've determinedwhat your investment mix shouldbe doesn't mean that it's permanent.Adjustments to your portfolio from timeto time are necessary. Work with yourfinancial consultant to update your portfolioas you experience lifestyle changes,such as additions to your family, sendinga child to college, or retirement. As your goals evolve, it is likelythat your strategy to reach them mayalso change. Fine-tuning your portfolioin a timely fashion will keep your portfolioin balance, help moderate your exposureto volatility, and keep you on courseto reach your financial goals.

Joseph F. Lagowski is vice president,investments, and a financialconsultant with AG Edwards inHillsborough, NJ. He welcomesquestions or comments at 800-288-0901 or www.agedwards.com/fc/joseph.lagowski. This article was providedby AG Edwards & Sons, Inc, member SIPC.