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Equity Securities Provide a Portfolio Growth Engine
By Dr. David Edward Marcinko MBA, CMP™
[Editor-in-Chief]
Equity securities provide growth. Theoretically, the amount of growth potential in an equity security is infinite. A stock’s price appreciation possibilities have no limit. However, a stock’s price can also go to zero and an investor can lose the entire amount invested. Therefore, while stocks contribute long-term growth to a portfolio, they also add risk.
Stock Diversification is Key
Diversification is the best defense against risk, so only a portion of every portfolio should be in stocks. Other investments—fixed income securities; cash equivalents that can be used to take advantage of opportunities or for emergencies; real estate; and even commodities (precious metals, for instance, or securities of companies whose businesses are commodity-based)—should all be considered by the responsible physician-investor or financial advisor as components of a well-rounded, balanced portfolio.
And So is Portfolio Diversification
The stock portfolio itself should also be diversified. Diversify among all types of equity securities such as some large capitalization stocks, some small capitalization stocks, some utilities, some cyclical stocks, some value stocks, some growth stocks, and some defensive stocks. Because it is difficult to adequately diversify an equity portfolio with a small amount of money, consider mutual funds or ETFs for some doctors or financial advisory clients. At least this is the philosophy of our Certified Medical Planner™ [CMP] online educational program.
www.CertifiedMedicalPlanner.com
Assessment
Always remember that, because the equity component of the portfolio can be expected to provide more than its proportionate share of the risk of a portfolio, it must be constantly monitored. Also remember that every physician-investor as a different level of risk tolerance, and some may be able to handle ownership of only the most solid and stable equity investments.
Conclusion
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Filed under: CMP Program, Financial Planning, Investing, Portfolio Management | Tagged: asset allocation, CMP, david marcinko, Equity Securities, Investing, Portfolio Management, stock diversification, www.certifiedmedicalplanner.com, www.healthcarefinancials.com | 2 Comments »
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