Investment strategy: preservation, balance and appreciation
There's a strategy you ought to know about, one that's designed to help you build an investment plan — with the guidance of your financial advisor — and feel confident sticking with that plan for the long term.
This strategy uses a framework that reflects the way most investors already think about their money.
Studies in the field of behavioral finance have shown that most investors use a process called mental accounting to separate their investment dollars according to their near- and long-term financial needs.
American Funds has adopted this way of thinking into its objective-based framework for investing. This framework divides investors' assets into three distinct categories of money:
Preservation, Balance and Appreciation.
"Preservation" holds money for today. It's designed to help you meet near-term needs and cover unexpected expenses.
It seeks to provide stability and to temper volatility, helping protect investments during market declines.
Keep in mind that while these investments seek to provide stability, they can lose value.
"Balance" seeks to build assets over time. It helps you pursue your long-term income needs, as well as future goals, like buying a house … or paying for college — the things you’ll need tomorrow.
It seeks to provide a balance of growth and income, and you should expect moderate-to-higher volatility from this category.
Finally, "Appreciation" holds money you won’t need until well into the future — someday — when you hope you can afford that dream vacation in retirement or leave a nest egg for your heirs.
To pursue these longer term goals, "Appreciation" includes investments that offer more growth potential — but generally higher volatility.
And there you have it: the three categories that make up our objective-based framework — Preservation for today, Balance for tomorrow and Appreciation for someday.
Working with categories of money tied to distinct objectives can increase your comfort level through tough market conditions and help you stay on track with your long-term goals.
Talk with your financial advisor about using American Funds' objective-based framework to build your investment portfolio and to see what’s right for you.
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- Investment strategy: preservation, balance and appreciation