Newspaper Page Text
6A
OCTOBER 25, 2001
Business
Theimportance ofdiversification
enitcomesto
investing,
“Don’t put all
your eggs in one basket”
is sound advice. The way
to avoid the risks of hav
ing allyour moneyinonly
one or a few categories of
assets is through diversi
fication.
Theprocess of determin
ing which kinds of invest
ments will be held in a
portfolio, and in what pro
portions, isknown as “as
set allocation.” Its pur
poseis to help you achieve
an optimal mix of invest
ments to produce the de
sired returns with the
least amount of fluctua
tion in the overall
portfolio’s exposure to
losses that could result
from a decline in one or
more of the portfolio’sin
vestment categories. By
spreading funds among
several investr..ent types,
an investor can increase
the probability that if the
performanceof oneinvest
ment type is disappoint
ing, others are holding
steady or sutperforming.
A study in the Finan
cial Analysts Journal con
cluded that the single
most important factor de
termining the perfor
mance of an investment
portfoliois how that port
folio is allocated among
different types of invest
ments. The study con
cluded that about 94 per
cent oftheinvestment per-
Area welcomes new State
Farm financial services office
By Rhonda Jones
! AUGUSTA FOCUS Staff Writer
: AUGUSTA
| EddieC.Bussey’sbrand-new
' State Farm insurance agency
'isup and running. Heheld an
‘open house on Oct. 15 for
' prospective clients and the
' community, complete with
. cakeand balloons, and showed
-off his elegant new. office,
- streaming with sunlight.
It’s a cheerful place to talk
-about your financial future.
- In spite of the bright and
sparkly nature of his office,
however, Bussey said that he
had already been there for
‘about 100 days. Buthewanted
everything to be perfect be
fore he invited the commu
nity in.
-~ “We waited purposely just
sowe wouldn’t open our doors
and not have all of our sys
tems in place to deliver the
kind of customer service that
we’re striving for,” he said.
“When we felt comfortablethat
we were ready to welcome the
public in, in this fashion, we
got ready to do it.”
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Consultant
formance of the pension
plansstudied was attribut
able to asset allocation,
with the rest attributable
to other factors, such as
securities selection and
market timing.
Surveying your
choices
Research supports the
conclusion that asset allo
cation may be the single
mostimportant decisionan
investor can make-more
important than individual
stock and bond selections
or market timing. So it is
important to be aware of
theinvestment alternatives
available toyou. Most types
of assetsfallunderthethree
broad categories of stocks,
bonds and cash equiva
lents. On a long-term his
torical basis, stocks have
provided the highest re
turns but have also experi
enced the most fluctuations
in price. Cash equivalents
havehistorically offered the
lowestreturns with the few
est fluctuations in price.
Bonds have generally fallen
somewhere between these
. =
. =
‘:. 3
BRETE
BT
Eddie Bussey
He explained the many ser
vices he offers.
“State Farm is a multimil
lion-dollar financial services
company. We offer all insur
ance products, including auto
insurance, homeowners’ in
surance, life insurance and
health insurance,” he said. In
additiontothat, hesaid, State
Farm offers annuities, and
mutual funds, as well asloans
from a State Farm bank now
open in the state of Georgia.
“We also will be offering
home equity loans as well,
AUGUSTAFOCUS
two categories in both risk
and returns.
Under these three broad
categories lie numerous as
set classes. For instance,
most stocks can be identi
fied as either “value” or
“growth.” Inaddition, they
can be further segregated
into large, small and mid
sized according to the total
market value, or capitaliza
tion, of all the shares out
standing. Bondscan beclas
sified by maturity-short-, in
termediate- or long-term-and
further segregated by type
of issuer-corporate, U.S.
Treasuries, mortgage
backed or municipal. Stocks
and bonds can also be cat
egorized depending on
whether they have been is
sued by U.S. or foreign enti
ties.
Diversification
and performance
Studies of the past perfor
mance of these subcatego
ries have revealed distinct
patternsregardingtheir his
torical returns and risk (as
measured by price fluctua
tions). Forinstance, a study
by the Salomon Smith
Barney Consulting Group
revealed that “value” stocks
(those perceived as priced
below their true worth) and
“growth” stocks (those ex
pected to grow faster than
Constance Woods is a financial consultant with
Salomon Smith Barney. For moreinformation, contact
Constance L. Woods at (706) 823-8144 or
constance.l.woods@rssmb.com.
and mortgages at the begin
ning of next year.”
50...y0u may be
wondering...which of these fi
nancial services are right for
me? Bussey will help you
figure that out.
“We sit down with each of
our customers and actually
talk to them about their suit
ability for certain financial
services products. Obviously,
when it comes to any kind of
investment, there’s a certain
amount of risk. We speak w/
each of our customers about
the possibilities of gaining on
their investment or losing on
their investment.”
And then if they find that a
certain investment doesn’t
offer the level of risk that a
customeris comfortable with,
he will help customers find
ways to use their money that
better suits them and their
goals.
Bussey’s State Farm office
islocated at 2613 Tobacco Road
in Hephzibah. He may be
reached by telephone at (706)
772-9800 or by fax at (706)772-
9803.
average) tend to outper
form each other over in
termediate time periods
ranging from three to
eight years. However,
over long time periods of
a decade or more, the dif
ferencein performance of
thesetwo asset classes di
minishes. Studies have
also revealed return and
risk differences between
large-and small-company
stocks and between U.S.
and foreign stocks over
long periods.
Because of these differ
ing patterns, the returns
on various asset catego
riesmay not be correlated.
In other words, they may
not move in the same di
rection or by the same
amounts. As a result,
their returns may par
tially offset each other.
By combining asset
classes in a portfolio, in
vestors may be able to
achieve returns that fluc
tuate less than any single
asset class held sepa
rately. This can increase
the compounding effect of
incremental returns over
time, possibly leading to
substantially higher total
returns.
Past performanceisnot
a guarantee of future re
sults.
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