The Concept of Basic Investment For Small Business

THE CONCEPT OF BASIC INVESTMENT 

FOR SMALL BUSINESS

Of course, there's a sarcasm. Usually the words "basic investment" and "fun" are not used together in one sentence. But what is lacking in basic aesthetic investments, they simply compensate for their meaning. The name "the concept of basic investment for small business" speaks for itself: this is the center (and possibly the only) part of your investment portfolio. The "basic" concept means investment requirements to maintain reliability over the years. This concept of basic investment for small business will be a solid foundation for the rest of your portfolio.

Once you have formed the basic parts of your portfolio, you can tackle other investments, building them on top of the core portfolio that has formed. Other investments may focus on specific economic sectors, such as health, for example, or in separate areas, such as Latin America. Because of their focus on one thing, other investments have greater growth potential, but for the same reason they can lead to increased volatility in the overall market value of the portfolio.

Mutual Fund Investment Funds as Basic Investments in Ordinary Portfolio

The stock investmenting market is dominated by large companies. They account for about three-quarters of the total US stock market capitalization. From the assumption that you want to take advantage of the growth of the stock market in general, and not only in part, you should consider the basic investment of a mutual fund stock, which is oriented towards a company with large capitalization.

Investment funds that own shares in large companies that are priced at a reasonable rate relative to their income are a reliable option for basic investment in any portfolio. Such funds usually do not lead the list of the most profitable investments, but they do not even spin on their tail. In short, they are "boring". This is what makes them the ideal choice as a basic investment.

An investor on an investor could be a little better with funds from a large capitalization company, whose market price allows them to be classified as "value-added investments." These funds are invested in large and long-term companies whose shares are priced less than their average share in the market. In addition, these funds invest in stocks of companies that have an excellent dividend payment track record. Focusing on investments in these slow-growing and sustainable companies brings this fund the lowest risk indicator in the historical period.

But wait a minute! In addition to "investment in value" there is also "investment in growth"! If the fund that follows the first strategy of investing is the right choice, why not choose the funds that match the second? These funds are usually invested in companies with large capitalization, whose growth potential is much higher than the market average.

With "investment in growth" funds it is not that simple. Although there are some exceptions, corporate growth funds do not fit basic investment requirements - their market price volatility is too strong to fit into the foundation of your portfolio with a clean conscience. In the period of market growth, the profitability of the funds will surprise you, but in times of recession, their losses are also unlikely to make you indifferent.

If you can not withstand high-yield prospects "growth funds" - try entering just one of them in the base portfolio. But do not forget to add a share of "value fund" with the same amount! From a technical standpoint, you create a kind of average fund, which is explained by us at the beginning of this section.

Maybe you want to enter the core of your portfolio and your foreign investment fund. Thus, you will not put all the eggs into the basket of the American stock market. Such funds should concentrate on the world's most advanced markets, investing in the most reputable companies, just as large corporate funds with capitalization in the United States.

In addition to stock funds, a good basic investment option is bond funds, if this does not conflict with your asset allocation concept. When selecting bond funds, stick to investments that only invest in high-quality securities. Try to select the funds whose securities have average maturity. Why? As the longer the securities circulate - the higher the market variability is its value. On the other hand, yields on short-term securities are usually very low. Choosing an average circulation period, you will get most of the long-term securities yields with only a portion of their market volatility.

Basic Shares

If funds are not suitable for you for several reasons and the stock is your choice, a stable and respectable company, called "blue chips", should be chosen as a base investment. As in the case of funds, the main concept will be "big" and "boring".

Preferred shares have a number of general qualities. For example, everything is profitable, meaning they are constantly generating a return on capital invested by shareholders very well. The indicator that characterizes return on capital is the ROE coefficient. However, each company can demonstrate the excellent value of this factor once in its life. Companies whose shares are appropriate as basic investments show excellent ROE values ​​over the years of their existence.

The stock of companies in accordance with basic investments continues to grow. Probably, their growth rates do not match the growth rate of a fashionable new company. But their earnings can be predicted from year to year, and they may pay part of this income to their shareholders in dividends.

Well and finally the company, whose shares are like a basic investment, is financially stable. In other words, they are not burdened with debt obligations. In addition, they generate a stable and significant positive net cash flow (net cash flow is money left after the company pays all costs). As a rule, such companies have a broad "gutter economy", which we discussed earlier. The business of such enterprises is mature, stable and profitable.

How Big Your Core Portfolio Should Be ?

Basic investment occupies up to 100% in individual portfolios. On the other - from 70 to 80 percent of assets. There are no clear rules that determine how large the portfolio should be associated with basic investments. We can only show that good practice is at least 2/3 of the total portfolio size. Ultimately, on this firm foundation you will build your financial welfare building.

Other investments are usually used for additional diversification or for additional growth opportunities. For example, if your basic investment is only for large company stocks, you might want to add some stocks of small companies or foreign stocks for additional diversification.

As long as you limit the portion of your most risky portfolio, your financial future is not threatened. Do not forget to first build a core core investment that is reliable and powerful - you do not need financial turmoil that can not survive in your portfolio.

I hope this article that discusses the concept of basic investment for small business can help the reader.