The Power of Combined Investment Strategies

The “combination investment formula” isn’t a single, pre-packaged equation but rather a customized approach where different investment strategies are blended to achieve specific financial goals. It’s about strategically allocating your capital across various asset classes and investment methods, optimizing for risk tolerance, time horizon, and desired returns.

Why combine strategies? Because relying on a single investment type leaves you vulnerable. A purely stock-focused portfolio suffers during market downturns. A bond-heavy strategy might offer stability but sacrifice potential growth. A combination formula aims to mitigate these weaknesses.

Key Components of a Combination Strategy

• Asset Allocation: This is the cornerstone. Determine the percentage of your portfolio allocated to stocks, bonds, real estate, commodities, and cash. A younger investor with a longer time horizon might favor a higher allocation to stocks for growth, while an older investor nearing retirement might prioritize bonds for stability.
• Investment Styles: Consider blending active and passive investing. Passive investing, through index funds or ETFs, provides broad market exposure at low cost. Active investing, through individual stock picking or actively managed funds, aims to outperform the market but comes with higher fees and risk. A balanced approach might allocate a portion to passive investments for core holdings and a smaller portion to active strategies for potential alpha.
• Diversification within Asset Classes: Don’t just buy “stocks.” Diversify across sectors (technology, healthcare, energy), market capitalizations (small-cap, mid-cap, large-cap), and geographies (domestic, international). Similarly, diversify within bonds by considering different maturities and credit ratings.
• Alternative Investments: Explore options beyond traditional stocks and bonds, such as real estate investment trusts (REITs), private equity, or hedge funds. These can offer diversification and potentially higher returns but often come with higher risk and illiquidity.
• Regular Rebalancing: Over time, your asset allocation will drift from your target due to market fluctuations. Regularly rebalancing your portfolio—selling assets that have outperformed and buying those that have underperformed—helps maintain your desired risk profile and can improve returns.

Building Your Formula: An Example

Let’s say you’re a 35-year-old with a moderate risk tolerance and a 30-year time horizon. Your combination investment formula might look like this:

• Stocks: 70% (split between US large-cap index fund, international index fund, and a small allocation to actively managed growth stocks)
• Bonds: 20% (split between US government bond index fund and a corporate bond fund)
• Real Estate (REITs): 10%

This is just an example. The ideal combination investment formula is highly personal and requires careful consideration of your individual circumstances. Consulting with a financial advisor can help you develop a tailored strategy that aligns with your goals and risk tolerance. Remember to regularly review and adjust your formula as your circumstances change.