Building blocks of investing
Personalized Investment:
The Building Blocks of Investing
Getting started with investments can be overwhelming. Because of this, we’ve defined the building blocks that beginning investors should understand and follow. These steps will help you make the right decisions, and be able to compound your efforts (and investments) over time
Not All Assets Are Investment Assets
An asset is anything of value that can be converted into cash. While this could encompass a laundry list of items, what’s important to understand is how you define an “investment asset.” Investment assets are defined by the following 3 elements:
How Liquid Or Illiquid Are Your Assets?
When determining whether an asset is liquid or illiquid, a good rule of thumb is determining how long it will take to convert to cash. Less than three days, it’s liquid. For more than three days, it’s illiquid. Furthermore, it’s important to also understand how much it will cost you to convert the asset into cash. Less than 1%, it’s liquid. More than 1%, it’s illiquid. What’s important to consider here is what level of access you have to your investments, and what the process would look like to convert them to cash.
Your Asset Mix: Stocks, Bonds, And Cash
Typically referred to as Asset Mix, the combination of stocks, bonds, and cash in your portfolio is important. While asset mixes vary across different types of accounts, it’s good to think about stocks being designated for growth while bonds are designated for income.
Depending on your wants, needs, or risk tolerance, you may choose a variety of asset mixes. However, our recommendation is to start with a 65/35 account (two-thirds stocks and one-third bonds).
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