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Written by: 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.
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