Choosing investment options: 3 concepts
Each investor has different goals and circ*mstances. No set investing strategy works for everyone. However, better understanding the following three concepts may prepare you to find a suitable strategy.
1. Investment types
Start by understanding the four most common investment options and comparing their risks as well as their potential for return. You’ll notice higher risk investment types have a higher potential for return — especially if you invest for the long term. Use this guide to get familiar with investment types you might want to include in your strategy.
Stocks
Overview
- Owning a stock signifies your ownership in a corporation
- You may invest in many different companies at once
Risk and return
- Highest potential investment returns over time
- Highest risk of losing some or all of the amount invested
Other information
- If the company does well and its stock price increases, your investment could increase in value
- If the stock goes down in price, your investment may lose money
Bonds
Overview
- As an investor, you loan your money to an entity
- The loan matures after a defined period of time
Risk and return
- Typically moderate risk level
- Risk depends on the financial strength of the issuing entity
Cash equivalents
Overview
- Short-term investment securities
- High credit quality
- Easily converted back to cash
Risk and return
- Low risk
- Low-return
Other information
- U.S. government Treasury bills
- Bank certificates of deposit
- Other money market instruments
Asset Allocation Funds
Overview
- The investment managers of an asset allocation fund invest in a mix of the three asset classes: stocks, bonds, cash equivalents
- Choose a fixed or variable portfolio
Risk and return
- You select your preferred balance of risk/return
Other information
- Some options start with high risk-return position and gradually become less risky as the investor ages
- Other options are actively managed in response to market conditions to maintain the original risk level objective
2. Investment Risk and return
Investing always involves risk and there are no guarantees that an investment will grow in value. Some people are comfortable taking on the risk of frequent ups and downs of the market in return for potentially greater long-term returns. Others prefer slower-earning, less-volatile investments. Investment options come with different levels of risk and return. Having a good mixture of options with different levels of risk and return can help to stabilize your portfolio during ups and down in the economy. While you should keep an eye on your portfolio’s overall risk exposure, avoiding investment risks alone exposes another, less talked-about danger: the risk of inflation eroding your account balance. Understanding your personal tolerance for risk will help you find a suitable investment mix for your portfolio. Maybe you are financially conservative and prefer stable investments. Or, perhaps you enjoy the thrill of risky investments and are hoping for larger potential pay-offs.
3. Your time horizon
Most investors have their eye on retirement. And, the amount of time you have until retirement may have a big impact on your investment strategy. This is called your “time horizon.” If you have more time until retirement, you may feel comfortable with riskier investment choices. You will have time to potentially ride out a market downturn or otherwise recuperate from losses. On the other hand, if your retirement is right around the corner, consider avoiding riskier options. Focus instead on preserving the assets you’ve already accumulated. It won’t be long before you will need them.
Use our Asset Allocation calculatorto find an investment mix that may have a suitable level of risk and return for you.
ASSET ALLOCATION CALCULATOR
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What type of investor are you?
As an investor, you want to find a balance between financial stability and potential asset growth — a balance that makes you comfortable with how you allocate your assets. Most investors fall into one of five types, depending on how much they value stability over growth. Get a feel for your financial risk tolerance when you answer these questions.
Note: Investment information is provided for educational purposes only.
Group variable annuity products are issued by American United Life Insurance Company® (AUL) and registered group variable annuity products are distributed by OneAmerica Securities, Inc., Member FINRA, SIPC, a Registered Investment Advisor, One American Square, Indianapolis, IN 46282, which is a wholly owned subsidiary of AUL. McCready and Keene provides administrative and record keeping services and is not a broker/dealer or an investment advisor. Neither AUL, OneAmerica Securities, McCready and Keene nor their representatives provide tax, legal or investment advice.
Investing always involves risk, including the potential loss of principal. Participants should carefully consider their risk tolerance, investing time horizon, needs and objectives as well as the specific risks and limitations associated with each of the investment options before investing.
What type of investor are you?
Your answers indicate that a retirement portfolio similar to this may suit your investment type.
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This risk profile is a sample only. The proper asset allocation for your situation may differ. In applying any one of the profiles to your individual situation, you also should consider your other assets, income, and investments (including home equity, savings accounts, and other retirement plans), as well as your needs, goals and aversion to risk. If any of these factors change, you should review your investment allocation.
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ECONOMIC LIFE VALUE CALCULATOR
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How much life insurance do you need?
Life insurance can replace some or all of the income and other contributions you make to your family in the event you're no longer around. You can more accurately estimate how much life insurance you may need when you know your Economic Life Value. The calculator below shows three methods for approximating your Economic Life Value.
Note: Life insurance contracts are issued and underwritten by American United Life Insurance Company® (AUL).
Calculating Your Economic Life Value
Using your current income and age as well as the age when you expect to retire, this calculator will provide you with three different estimates of your Economic Life Value. All fields are mandatory.
Results
| Income Factor: Your income factor is the product of your current income and a default income factor. Income factors use historical life insurance data and project economic conditions. Ask your financial professional for more information about adjusting the income factor to your specific situation. | $ |
| Income Potential: This straightforward calculation estimates your lifetime income potential by multiplying the number of years until you retire by your annual income. | $ |
| Income Analysis: Dividing your current income by a standard withdrawal rate shows what it would take for your family to withdraw an amount of money similar to your present income. | $ |
Share these basic calculations with your financial professional who can include other economic factors and provide you with a more holistic financial picure. To discuss the economic life value you bring to your family in greater depth and identify potential gaps, contact your financial professional.
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403(b) 15-YEAR CATCH-UP CALCULATOR
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Opportunities to increase elective deferrals to a 403(b) plan
This catch-up contribution lets you voluntarily choose (or elect) to have more of your pre-tax dollars deposited into a 403(b) account (above and beyond the annual limit of $19,500 in 2020). As a result, your total elective deferral limit could increase to $22,500 for 2020.
Do you qualify?
To qualify, you must:
- Participate in a 403(b) plan that allows 15-year catch-up contributions
- Work for a qualified employer, including:
- Educational organizations (public or private schools)
- Hospitals
- Home health service agencies
- Health and welfare service agencies
- Churches
- Conventions or associations of churches
- Complete 15 or more years of service for that qualified employer. To learn more about calculating years of service, see IRS Publication 571.
OneAmerica Financial is the marketing name for the companies of OneAmerica Financial. Investing involves risk which includes the potential loss of principal.Please note that the use of asset allocation or diversification does not assure a profit or guarantee against a loss. Bond funds have the same interest rate, inflation, and credit risks that are associated with the underlying bonds owned by the fund. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary, or investment advice.
As an investment enthusiast with a depth of knowledge in financial planning and asset management, I've spent years studying various investment options and strategies. My expertise extends to understanding the nuances of different asset classes, risk-return profiles, and the importance of aligning investment decisions with individual goals and time horizons.
Let's break down the concepts presented in the article on choosing investment options:
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Investment Types:
- Stocks: These represent ownership in corporations and offer potentially high returns but also carry high risk. Factors such as company performance and market conditions impact stock prices.
- Bonds: Investors lend money to entities for a defined period, with moderate risk levels based on the issuer's financial strength. Bonds are utilized by various entities, including governments and corporations, to finance projects.
- Cash Equivalents: These are short-term, low-risk investment securities with high credit quality and easy conversion to cash. Examples include Treasury bills and bank certificates of deposit.
- Asset Allocation Funds: These funds invest in a mix of stocks, bonds, and cash equivalents, offering varying risk-return profiles based on the chosen portfolio balance.
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Investment Risk and Return:
- All investments involve risk, and higher risk often correlates with the potential for greater returns. Understanding personal risk tolerance is crucial for building a diversified portfolio that balances stability and growth potential. Additionally, inflation poses a risk to maintaining the purchasing power of investment returns over time.
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Time Horizon:
- An investor's time horizon, particularly concerning retirement planning, influences their tolerance for risk. Longer time horizons may allow for riskier investments with potentially higher returns, while nearing retirement suggests a focus on capital preservation.
The article emphasizes the importance of aligning investment choices with individual preferences, risk tolerance, and time horizons. It suggests using tools like asset allocation calculators to determine suitable investment mixes based on these factors.
In summary, the key to effective investment decision-making lies in understanding the diverse range of investment options available, assessing risk-return profiles, and aligning strategies with personal goals and timeframes.
