Balanced Investing

NOTE- This is not an investment advice or legal or professional recommendation.

There are no risk-free investments for accumulated capital. Most common forms of accumulated capital are invested in cash, real estate, stocks, bonds, crowdfunding loans, precious metals etc. Each method of investment carries the inherent process of incurring a loss (such as inflation-related loss for cash, and market and other fluctuations for the rest). The investment style should also take into account the investor's age, financial goals and need to tap the investment for personal and other use in the future (the timeframe of investment).

A wise investor must balance his investment according to above factors in order to ensure proper growth of the capital, expected accumulation of wealth and minimizing potential damage to the principal investment amount and compounded growth by market fluctuations (Market Highs and Lows, Bull and Bear markets, respectively). This phenomenon can be further explained by "two kids on a swing" phenomenon where the swing is the timeline and its pendulum-like motion is the market trends. The kids must balance their position and secure each other while the swing is in motion through a pendulum effect (market fluctuations including the Bull and Bear markets). A delicate balance between the momentum that may create a fall and the kids' ability to hold on to the swing in a secured position is identical to an astute investor attempting to fulfill his or her financial goals during a given timeframe.

We will discuss several strategies that may help further define balanced investing:

1) Capital Preservation
This appears to be one of the least productive investing methods. Accumulated capital is mostly invested in cash, cash deposit (fixed deposit) accounts, and US treasury bonds. The growth of capital is minimal, the risk of loss is low and there may be a cash flow from the interest and dividends paid by the aforementioned securities. The investor reaching the end time of his investment life where he needs to preserve the capital from future losses and requires a steady stream of income from his or her investment (when earned income ceases such as in retirement) may choose such a strategy.

2) Diversification
Appropriate distribution of one's assets in various securities help minimize the loss during great market fluctuations. Investing most of one's fortune in a small number of securities (such as a handful of single company stocks) may result in greater loss and/or missed gain over a few decades.

3) Asset Allocation
The investor may choose to divide asset allocation in various formulas. There is no one best way to allocate the percentages to various investment to minimize loss and improve gain. However, one of the methods is to use one's age and use that number to allocate capital to safer assets (cash, high-quality bonds etc.) As the investor's age increases, the amount of capital present in safer assets increases thus potentially reducing risk.

4) Emergency Fund
Before any investment is made for the goals of saving for the future, it is quite important to consider having at least six months of living expense stowed away in cash or easily accessible manner with minimal risk to this principle. This allows the investor to remain focused on making investments regularly (see next paragraph on Dollar Cost Averaging) and have funds available for unforeseen expenses. The amount of emergency fund varies greatly according to one's needs.

5) Dollar Cost Averaging
Investing small quantity of capital on regular basis over decades results in a fair chance of missing wide fluctuations of the market that often result in greater loss of principal investment amount (when the market is unusually high; the bull market when stocks/bonds are expensive to purchase) and potentially missed opportunities for making good investments when the market is low (when stocks/bonds are cheap to purchase).

6) Periodic Security Evaluation
It is prudent for the investor to evaluate his or her portfolio on regular basis (twice a year or once a year) to ensure he or she stays on the track to achieve goals defined at the time of starting the investment. A periodic adjustment may need to be made when investment goals change (such as child's education expense, marriage, nearing retirement).


As seen in the video, a smaller child is considered a riskier asset (such as volatile stocks, low-quality bonds) and elder child is considered a safer asset. The elder child ensures the younger one is holding the handrails correctly and he is further secured by her own hands (more investment in safer assets as the investor's timeline for investment shortens or retirement nears). The swing motion is kept gentle to allow for stability (through proper diversification and asset allocation). The elder kid is verbally instructing the younger kid to watch for a fall (periodic security evaluation).

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