Types of Securities and Their Purposes:

The primary purpose of Equity securities (common stocks) is to produce Growth in Capital. Dividends generated in the process are a secondary benefit, and should never be the reason for an equity holding. But never lose site of the simple truth that only realized Gains count! Most Unrealized Gains on brokerage account statements reach the Schedule "D" as realized Capital Losses.

The purpose of Fixed Income securities (all bonds, preferred stocks, REITs, etc.) is to Generate Cash Flow in the form of dividends, interest, and returns of principal. These securities are "interest rate sensitive", meaning that their market value will vary inversely with interest rate expectations. Thus, they will occasionally produce capital gains opportunities! Such gains are "gravy" only, and should never be included in one's income projections!

Real Investment Managers Don't Sell Products.

Investment Managers are different, and even though 99% of the financial professionals in the world think of themselves as Investment Managers, they aren't! Investment Managers are different because they neither sell packaged, one-size-fits-all, financial products, nor do they develop investment plans that some other professional is to implement.

True Investment Managers may have a role in developing an Investment Plan, but the key identifying characteristic of an Investment Manager is his or her role as a "hands on" decision maker. The Investment Manager has full responsibility for the selection of every individual security that is added to the investment portfolio.

Investment Managers direct other people to execute transactions for their clients because it would be a blatant conflict of interest for any Investment Manager to earn commissions either directly or indirectly from the transactions they initiate.

Investment Managers never delegate their decision making authority. 

Still, you may find that many Investment Professionals do sell products, routinely accept commissions, recommend asset allocation formulas that fit their product mix, and advertise themselves as Investment Managers. If this is where you are, then YOU have to become the manager! 

Managing an investment portfolio begins with the identification of what is to be accomplished... The Investment Plan. Objectives and Timing will vary by individual, but it is essential that this exercise is STEP ONE!  

Typical objectives could include: creating adequate retirement income, preparing education funds, and preservation of capital. Reasonable growth in portfolio value should be expected, but it should not be a "stand alone" goal. If "beating the market" comes up as a possible goal, you can be sure of two things:

• You will be disappointed most of the time, and
• You have a lot to learn about investing.

A classic mistake made in the planning stage of most investment programs is to plug personal numbers into a standardized, and simplified financial planning computer program. Keep it personal and keep it simple...because it is!  Goals Must be Reasonable, and actual rates of return are absolutely Not Predictable!

Investing always involves an element of risk, and no matter how careful an investor is, losses will occasionally occur. The impact of a  loss is minimized by establishing operating guidelines and standards that are religiously applied to every investment decision. 

Rules must be established to assure: that every security is of appropriate QUALITY, that it compliments the DIVERSITY of the portfolio's content, and that it adds to the annual INCOME generated by the portfolio. 

Don't even think about saying: "I don't need any more income". That's an egocentric mistake. A quality Equity Security proves itself by paying dividends, and a secure income base built early in the investment program (1) provides cash when profits are rare and (2) prevents a lot of panic when retirement (or unemployment) happen.

Types of Securities and Their Purposes:

The primary purpose of Equity securities (common stocks) is to produce Growth in Capital. Dividends generated in the process are a secondary benefit, and should never be the reason for an equity holding. But never lose site of the simple truth that only realized Gains count! Most Unrealized Gains on brokerage account statements reach the Schedule "D" as realized Capital Losses.

The purpose of Fixed Income securities (all bonds, preferred stocks, REITs, etc.) is to Generate Cash Flow in the form of dividends, interest, and returns of principal. These securities are "interest rate sensitive", meaning that their market value will vary inversely with interest rate expectations. Thus, they will occasionally produce capital gains opportunities! Such gains are "gravy" only, and should never be included in one's income projections!

Establish a Personal Investment Management "Style" or "Strategy":

There are many suitable investment management styles that an individual can learn, understand, and implement once reasonable goals and objectives have been identified. An appropriate strategy will "fit" well with the Plan, the Asset Allocation, and the investor's emotional discipline!

To be "suitable", a strategy must contain several clearly identifiable elements or disciplines, along the lines of the key decisions that a manager needs to make on a day to day basis ("buy", "sell", "hold"). Most "off the shelf" investment styles emphasize just one of these elements: What to Buy, When, and Why. Certainly this is important, but there are several other investment decisions that can't be left to whim or to chance. Be careful not to embrace a "buy" strategy that is based on any kind of predictions. Finally, human emotions must be taken out of the equation entirely.

The "strategy" (Your Strategy) must also include clear, target based, selling (profit taking/loss taking) rules. There must be parameters that define the size of initial commitments to a security and a plan for adding to holdings. It is especially critical that you have an Objective Based Method (see: the Working Capital Model) for monitoring portfolio performance.

Additionally, the Fixed Income portion of your portfolio must be dealt with differently than the Equity portion.

Regardless of how well you design your portfolio and create a decision making model that is easy to implement, you must also be able to unemotionally stick to your guns in the face of massive "media attacks" that just could make you change direction for any number of reasons.

To successfully manage your investment program, you must be consistent in your decision making, disciplined in applying your rules, and patiently determined to allow enough time for your strategy to succeed. One Year is not nearly Long Term, and not nearly enough time for any well thought out Investment Strategy to prove itself.

Over the years, and its been a lot of years, I have yet to find a correlation between any Stock Market, Economic, Business, Interest Rate, or Hem Line Cycle and... the Calendar Year.