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A caterpillar’s equation for investing

Posted September 10, 2024 at 10:15 am
Neerja Caprihan
Interactive Advisors

Remember The Very Hungry Caterpillar1? With its simplistic storyline, attractive illustrations and a charming protagonist, it remains a beloved children’s classic. The green caterpillar, with its unconventional collage-art, makes for a very recognizable figure to date. The book has captivated an audience of students and educators alike for years. It offers a plethora of lessons, without actually looking or feeling didactic at all. As a result, it lends itself to being a versatile teaching aid that can be used to reinforce concepts ranging from number counting, days of the week, colors and food habits for a younger audience, to the biological process of metamorphosis and nuances of compelling art or timeless design for an older one.

As an engaging piece of work that charts and celebrates a journey of growth, it is relatable and fun, with a dose of plain common sense. The next time you spot this visually-appealing book at a bookstore, or decide to buy or read it for someone, think about the insights it offers even to an investor. If one had to summarize it in a simple equation – 

DIVERSIFICATION + BALANCE = GROWTH (Over Time)

Interestingly enough, this could as well describe our Asset Allocation portfolio offering.

  • Diversification – The ravenous caterpillar begins his diet with one apple, and then goes on to diversify his food intake to polish off pears, plums, oranges, cake, cheese, pie and sundry. It is telling that he didn’t just grow with, say cake, as his staple meal. Likewise, depending on his appetite, circumstances and preferences, an investor may consider diversifying his portfolio, that is, buying a basket of securities that tend to do well (or poorly) at different times and under different conditions. Interactive Advisors offers several diversified multi-asset portfolios that are dialed up or down for risk, offer good diversification across different asset classes, and attain this diversification by investing in low-cost, liquid ETFs. 
  • Balance – As the caterpillar munches his way through an assortment of food items (and the pages of the book), he steadily increases the portion size. Once he hits a bout of indigestion after greedy carelessness with food distribution, he resets his system by consuming a simple green leaf to restore the balance. Towards optimal distribution, our Asset Allocation portfolio allocates capital to an equity component, a bond component and an inflation-hedging component. Together these deliver a moderate level of diversification, which leads to risk reduction and return stability. The capital allocation to each of the asset classes is balanced depending on the targeted risk level. If one is looking to customize, there is a permissible range for each ETF component, protected by guardrails. The restorative green leaf is provided in the form of our auto-rebalancing feature wherein rebalances are automatically performed every quarter to keep the portfolio aligned with target allocations.

Source: https://interactiveadvisors.com/learn-more/asset-allocation

  • Growth – Having wisely provided for himself in the initial days of its life, the caterpillar builds itself a cocoon as a safe haven against inclement circumstances. It now lies in patient wait, for the magic of metamorphosis to occur over a period of time. And finally a remarkable butterfly emerges and takes flight! The trajectory of a portfolio could mirror the same flight one day. The client risk score allotted to you upon signup and your account type (IRA vs. non-retirement) helps Interactive Advisors in creating the right Asset Allocation portfolio for you. When asset classes are combined together in a smart and prudent manner in a portfolio, they can provide income, growth, and stability during different economic conditions like market downturns, inflation or simply periods of growth.

Hungry for more information? Have a preliminary read here

Very hungry, just like the caterpillar? Read our whitepaper on Asset Allocation

Originally Posted September 9, 2024 – A caterpillar’s equation for investing

DISCLOSURES:

Nothing in this article should be construed as a solicitation or offer or recommendation to buy or sell any security or as an attempt to provide any investment advice. Investment advice is only provided to investors who become clients pursuant to an investment management agreement. Covestor Ltd is an investment advisor registered with the Securities and Exchange Commission, doing business as Interactive Advisors (“Interactive Advisors”).

Diversification of assets (which Interactive Advisors uses to reduce the risk of investment in this portfolio) does not ensure a profit or protect against investment loss. All investments, including those in this portfolio, involve the risk of loss, including possible loss of the money invested and a reduction in earnings. Market fluctuations and other factors may cause decreases in the value of client accounts invested in this portfolio. Interactive Advisors does not guarantee that any particular Asset Allocation portfolio will meet a given client’s investment objective or provide a client with a specified level of income. Past performance is no guarantee of future returns. This portfolio mainly invests in ETFs and stocks and may not be suitable for all investors. Clients may lose all or part of their investments in this portfolio.

Interactive Advisor is a registered investment adviser with the U.S. SEC. Registration does not imply a level of skill or training. Past performance is no guarantee of future results, nor is it indicative of future performance. All investments in financial markets involve risk, including the risk of loss, such as a loss of principal and reduction in earnings. 

The content of this page is offered for informational purposes only, does not constitute investment advice, and is not an offer to buy or sell any security or invest in any of our portfolios. 

For more detailed disclosures, please review our Legal Disclosures webpage.

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Disclosure: Interactive Advisors

This material is not intended as investment advice. Interactive Advisors or portfolio managers on its marketplace may hold long or short positions in the companies mentioned through stocks, options or other securities.

Pursuant to the Investment Management Agreement between Interactive Advisors and its clients, all brokerage transactions occur through Interactive Brokers LLC, an affiliate of Interactive Advisors. Interactive Advisors does not offer services through any other broker-dealer. The use of an affiliate for brokerage services represents a conflict of interest. Interactive Advisors clients acknowledge this conflict of interest and authorize Interactive Advisors to execute transactions through Interactive Brokers LLC when they open an Interactive Advisors account. Clients should consider the commissions and other expenses, execution, clearance, and settlement capabilities of Interactive Brokers LLC as a factor in their decision to invest in an Interactive Advisors Portfolio. Interactive Advisors believes it can meet its best execution obligation by trading its clients’ trades through Interactive Brokers LLC. While there can be no assurance that it will in fact achieve best execution, Interactive Advisors does periodically monitor the execution quality of transactions to ensure that clients receive the best overall trade execution pursuant to regulatory requirements.

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Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Interactive Advisors and is being posted with its permission. The views expressed in this material are solely those of the author and/or Interactive Advisors and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: ETFs

Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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