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Invest For Sustainable Growth

By Doug Famigletti, CFA, Managing Partner & Portfolio Manager

High Risk Investing

High-flying, risky investments tend to grab all the headlines. It can be exciting to bet big and, sometimes, it pays off. But hopping on the latest trend or jumping in and out of the market is not an investment strategy. In fact, it’s the equivalent of riverboat gambling and can carry significant risk. If you absolutely must gamble, however, a good rule of thumb is to make sure that less than 5% of your total net worth is invested in these high-risk categories.

5 High Risk Categories

  1. Cryptocurrencies are poorly regulated and can fluctuate wildly in value on a day-to-day basis. For the average investor, this can lead to significant losses over time.
  • Penny stocks may seem enticing due to their low prices, but they often lack stability and reliable returns. There is a reason they are called penny stocks- you get exactly what you are buying.
  • Meme stocks are equities that online communities promote or build narratives around. The basis for investing in meme stocks has more to do with market euphoria than sound economics.
  • Leveraged ETFs use financial derivatives and debt to amplify the returns of an underlying index, and thus carry a much higher risk.
  • Inverse ETFs are also very risky as they use financial derivatives to “short” or create a profit from the decline in value of a specific benchmark.

Wealth Over Time

If you’re not a gambler and you are looking to build a quality portfolio over time, there are several investment categories that can provide a meaningful return relative to their risk profile. It is important to remember that diversification is the key to minimizing risk and is the backbone of every balanced portfolio. Following are 5 investment categories that, when incorporated into a long-term portfolio strategy, can help your net worth steadily increase over time while mitigating risk.

5 Low to Moderate Risk Categories

  1. High-Quality Dividend Paying Equities tend to be large and mid-capitalization corporations that have a strong management team, defensible competitive advantages, steady growth and sector leadership, and a history of increasing their dividends over time.
  • Broad Index ETFs are funds that reflect the movement of an entire market such as the Dow Jones Industrial Average or the S&P 500. These types of funds come in all shapes and sizes but, overall, tend to be well-diversified across sectors and offer favorable returns relative to the risk.
  • Money Market Accounts (MMAs) are like savings accounts with higher interest rates, but also higher minimum balances. MMAs allow access to funds with a set number of transactions per month and a variable interest rate but may not keep pace with inflation.
  • High-Quality Corporate Bonds are fixed-income securities representing a loan made by an investor to a high-quality and trusted corporation. They are a popular choice among investors seeking a regular income source at a predictable rate. While there are some risks, bonds are generally considered a safe investment.
  • US Treasury Securities are loans to the US government that pay back the principal amount and interest after a period. These investments are backed by the full faith and credit of the US government. But, when interest rates rise, the price of existing bonds, including US Treasury Securities, tends to fall.

It takes time and experience to plan and manage a sustainable growth strategy. But there’s no better time than the present to get started. Set up an appointment with a seasoned advisor at Griffin Asset Management to plan your investment strategy today.