Index investing is a form of investing that aims to generate the same rate of return as an underlying market index. For example, the S&P 500 is an index, as is the NASDAQ Index. Individuals who actively invest to attempt to consistently outperform an underlying index find it very challenging over the long term. Future Bright believes that a large percentage of your assets should be invested in indexes.
Diversification involves owning a wide variety of non-correlating assets (e.g. – stocks, bonds, cash), and it allows you to reduce risk and volatility within your investment portfolio. We believe most of your assets should also be spread across industries and geographic regions using low-cost index investments.
Rebalancing is equally as important as diversifying assets. It involves periodically buying or selling assets in your portfolio to maintain a your desired level of asset allocation.
Lifestyle investing involves aligning a portion of your investment dollars towards things that are important to you that intersect your life. It’s an investment that can keep you engaged with the process and make the investing experience enjoyable for you. It’s also a way to benefit from the shareholder mission of companies you patron. We believe a small portion of your assets should be invested in a basket of companies that represent your lifestyle.
Investing was once only about maximizing profit. Since investing has become more affordable to everyone, we’ve seen individual investing shifting to include investments that reflect the ideas, hobbies, interests, and beliefs of investors. Don’t mistake personalization for lost opportunity, though. This group of 6th graders showed that affinity for certain companies can also generate good investment results.
Not every individual stock may be destined for great returns. Then, again, some may be. Investing in what you know, love, need, and believe is sometimes not enough. Other times, it rewards you beyond your own expectations. That is the nature of owning stocks, even the ones that intersect your daily lives. On occasion, you may have to cut your losses on a stock, while other times you may want to accumulate more shares of another. That’s rotation.