What is the point of investments? To grow money! You start out with $100 and buy a share of a company. Hopefully that company does well and make that share more valuable so that down the road you can sell the share for $110 or $120, or maybe more! That’s the goal. The unfortunate truth is that not every company can make their shares more valuable. Not every investor sees value in the company you invest in. So, there is RISK. What you hope will grow and return a profit may shrink and lose your money.
Let’s create an example to look at. Our company, GoodHealthHospitals, Inc. is in the healthcare business. Specifically they manage hospitals. Let’s buy 5 shares of their stock for $20 a share. Our hope is that our shares are going to increase in value. We have researched the company and they have good management and healthcare is always needed, right?
As we watch GoodHealthHospitals, Inc. and their stock price we can begin to see what effects the value. As they have a good quarter the price rises, or visca versa. You could even zoom out a little and see the entire healthcare sector on the whole and see things ebb and flow based on politics or other global factors. What happens if things start looking bad? You may eventually decide it’s time to move investments, and that’s okay! We want it to grow! That’s what Growth and Risk Reduction is all about. Although you can’t know for sure what a stock (or the stock market) will do, you can look at these factors and make an educated decision on how aggressive to be with your money.
Now, you are a busy person. Wouldn’t it be nice if there was someone that could check on your investment for you? They can check the company value, the market, and politics instead of you? Let’s even choose that someone to be knowledgeable about stocks and investments. There are companies that do exactly that. Their entire business model is to make the decision to be aggressive (and put money in investments that have the potential to grow faster), or to be more conservative, and focus more on keeping value (or, to be more specific, NOT losing value).
It is important to remember, that since no one can actually predict what the stock market will do, even these companies can get it wrong sometimes. That is why it is critically important to view a companies track-record. Look back 10 years or more and see how it looks. Sometimes you can see where they made a mistake, but then they get it turned around and make the right changes.
We here at Southern Heritage Financial Group suggest growth and risk reduction companies that have a strong focus on protection. We believe it is invaluable to any investment to avoid the major down-trends of the market, even at the cost of potentially less growth.