Dominant Benefit Theory
Instead of the simplistic cash-bonds-stock breakdown, Beaumont uses a more encompassing method of categorizing the increasing diverse investment universe. The Dominant Benefit Theory of Investing defines all investments into one of five categories based on the dominant characteristic of each investment:
Safety: The dominant benefit is the stability of the investment principal. Risk and commensurate reward are low. Examples include money markets, certificates of deposit and fixed annuities.
Income: Current interest income is the major characteristic. While principal risk and/or appreciation/depreciation potential exist, the dominant benefit is the steady income produced by the security. Examples include all types of bonds.
Equity Income: Current, relatively high dividend income is the primary characteristic. Growth is a strong secondary objective. Capital appreciation/depreciation potential and risk are more similar to Growth investments. Examples include preferred stock, royalty trusts and real estate limited partnerships.
Growth: Capital appreciation potential is the dominant characteristic, while any income paid is relatively low and a secondary benefit. Examples include common stocks with dividends and mutual funds containing growth stocks. Principal is at risk of loss.
Aggressive Growth: The dominant benefit is the significant potential for capital appreciation. No income is paid on these types of securities and the risk of loss to the principal is significant. Examples include non-dividend paying stocks, aggressive growth mutual funds, commodity based securities and initial public offerings.
By utilizing this approach we feel we are better able to match client's portfolios with their goals, risk tolerances, and time horizons
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