Many investors understandably wonder what types of investment opportunities their financial advisor might steer them towards as they work to build up a financial portfolio. There are no hard rules and no generalized answers that apply to every situation, because every investor is different according to age, investment capability, risk tolerance, and many other factors. However, it is still useful to think about this question in a general way to attempt to come up with some basic answers that apply in most cases with most investors. Thinking about the types of investments your financial advisor might recommend for you can give you a head start getting an idea of the kinds of goals you’d like to set for your portfolio ahead of time. Give the topic some thought and be prepared to come to your financial professional with some ideas of your own.
Most Advisors Recommend Common Investments
As a general rule, financial advisors working with clients to build up a retirement or investment portfolio will analyze their portfolios and make recommendations based on a relatively safe course of action. Especially for beginning investors and those of us who do not have a huge amount of capital to invest, these widely accepted investments represent the most frequently promoted types. Short term goals are often put into place with certificates of deposit (CDs). CDs these days bring relatively low rates of return, but this return is guaranteed, at a specific rate and a predetermined schedule. In addition, certificates of deposit have the added advantage of being quite flexible. They function as an interest bearing savings account in that they generate a predictable income while giving the investor a safe place to store their money; yet these funds are also available in emergencies if the investor needs the cash in a pinch. Penalties do apply for early withdrawal, but the fact that the money can be withdrawn quickly makes a CD an attractive choice for many investors.
Stocks and Bonds Also Prominent
Other common investments recommended by financial advisors for basic level investors are stocks and bonds. Government bonds are very low risk, and many highly rated corporate bonds pose similar low risk. There are some risky bonds, of course. Certain companies are judged a higher risk to default on a bond based on past performance and present solvency. The typical financial advisor will guide a beginning investor toward some of the safer, higher rated bonds in most cases.
The same principle applies to stocks and mutual funds. Advisors look for strong historical performance, relatively low volatility and strong rate of return over time. Stocks and bonds might be a more appropriate choice for long term investment than a certificate of deposit. They offer a potentially higher annual rate of return, and the chance of short term loss can be offset over time. In fact, investors looking for long term products to put some money into should actually seek out struggling and undervalued stocks because when these financial products recover their value, the potential profit that can be made is huge.
Riskier Investments Less Commonly Recommended
Financial commodities like grain futures, precious metals, and oil are riskier products to sink money into. Financial advisors normally do not recommend these types of financial products for beginning investors, especially those who essentially cannot afford to lose the principal they have invested. As we previously mentioned, there are always exceptions to this general rule. Talk to your certified personal financial professional and discuss your investment and income goals, and set up a portfolio that matches what you are looking for.
