Investing begins with a strategic plan based on; age, personal risk tolerance, cash flow needs and how
actively you intend to manage your portfolio. Before a plan can be devised an investor must make
some personal decisions. The following information will help in this decision making process.
1. READ THE OPERATING MANUAL
An understanding of the terminology and knowledge the security types in the ISI is important when using
the Newsletter. The importance of this cannot be overstated.
Common stocks are all about the same, t h ey all represent a
percentage of ownership in a company. This is not true with
income securities .
Each bond or preferred is unique, having its own characteristics
or features. Bonds and/or preferreds issued by the
same company can be vastly different from each other.
2. DETERMINE YOUR RISK TOLERANCE
In the context of ISI, risk refers primarily to loss of principal
or income because the company was unable to meet
its obligations. This is also known as credit risk and does
not refer to other risks associated with income securities
such as changes in interest rates or market risk . ISI identifies
each are commended security by its risk level . The best
measure for determining your risk level is “how well your
portfolio lets you sleep at night.”
3. DETERMINE YOUR INVESTMENT NEEDS
Every investor should have a re a s on to invest in a give n
Security. Needless to say we all want our portfolios to
Grow but how this is accomplished depends on the type of
Securities we buy
I N C O M E: Investors seeking a steady cash income and principle
Protection usually buy and hold low risk bond s, preferred or hybrids.
These are usually high-level investment
Grade securities with ratings at or above Baa1/BBB.
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4. PACKAGING YOUR INVESTMENT FUNDS
An investor should carefully plan their investment go a l s
Before buying securities. Packaging or creating mini
Portfolios with funds available are an important step in planning
Two key elements in this planning process are:
T I M I N G: Package funds based on when they will
Be needed.
A. Long term - needs such as retirement are met with on e
Investment package.
B. Shorter term - needs such as; saving for children’s college
education, future purchase of a new home, automobile,
RV or that long dreamed about boat are usually
Addressed with a medium term package of securities
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C. Immediate needs - such as petty cash or unexpected
expenses should be met from a package made up of ca sh ,
money markets or other types of liquid securities.
R I S K: Package funds by risk. Age is a key element
in this process.
A. Low Risk - packages aim for principal protection first,
Income second and usually consists of investment grade
Securities. Lon g - term portfolios are com m only saturated
with low risk securities.
Medium Risk - packages have a balance between principal protection and income. They have a mixture
of investment grade and high non-investment grade Securities.
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C. High Risk - packages are created with income and
or growth as their primary goal. They usually consist of
Below investment grade securities. Principal protection is low priority.
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