The three major asset classes of capital accumulation are equity investments, interest-earning investments (including both fixed-income and cash-equivalent securities) and real estate investments.
Most areas of financial planning are closely related to capital accumulation as a careful evaluation of your portfolio is essential key to success.
- Understanding Risk– There are different kinds of risk unique to each asset class. Financial or business risk involves the security issuer’s ability to generate revenue and can be jeopardized by broad economics, soaring costs, decreased demand and increased competition. Market risk is a danger to an investment when an asset becomes unattractive to buyers. Interest rate risk involves the prevailing level of rates available at the time of reinvestment of proceeds.
- Return Types– Investment principal needs to be exposed to some level of risk in order to grow. A contingency component requires a level of liquidity or ability to cash out investment apart from the growth component. The stability of income levels needs to be evaluated to match your need. Purchasing power needs to be addressed in rising inflationary periods. The taxability of the return needs to be optimized. e calculator below gives the overall return of a basic investment. This calculator determines the rate of growth of an investment. The calculator below gives the amount of time needed to accomplish your goal and determines the toll of inflation.
- Objectives Meet Your Needs– SCM advise you by gaining an understanding of your overall financial objectives and investment experience. The current portfolio holdings are evaluated and an appropriate asset allocation target is established. The asset classes to be allocated are equity, fixed income, cash equivalents and real estate. At SCM, investment guidelines are explicitly expressed and adhered to when making portfolio decisions. Intermediate objective can be evaluated by calculating the inputs to achieve a goal. Below are calculators for college savings and education spending.
- Equities– Common stocks have consistently provided after-tax returns well above the rate of inflation and should represent a substantial portion of the portfolio. The major forms include common stocks, preferred stocks, stock exchange-traded funds (ETFs), stock mutual funds, options, and commodity futures. SCM uses primarily common stocks and ETFs.
- Fixed Income– Fixed income securities provide a stated, periodic rate of return on money lent to an issuer. They provide greater income protection than equities but can be just as risky in fluctuating interest rate environments. Types of fixed income securities include municipal bonds, corporate bonds US government securities, US savings bonds, mortgage-backed securities and short-term securities such as CD’s, money market funds and commercial paper.
- Real Estate– Real Estate has also provided excellent, long-term returns well in excess of inflation and should play an important role in capital accumulation. Methods of ownership include direct ownership, limited partnerships, real estate investment trusts (REITs) and real estate mutual funds. SCM recommends categories of real estate investments which fit a your need. The specific investments are evaluated and the real estate portfolio is monitored.
