Investor Education Overview

Asset Allocation/Diversification

Asset allocation is the selection and blending of investments to help you achieve the greatest return while managing your level of risk.

Asset allocation is more than just diversification. It is looking at a wide variety of investment choices from several categories and then developing a diverse portfolio of stocks, bonds and money market instruments. The process of determining which mix of assets to hold in your portfolio is based upon your specific financial goals. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

Asset allocation works because it balances opportunity with risk. Successful financial planning requires more than luck or timing. It demands a disciplined approach that accounts for your goals and how these goals change throughout your life.

Investment Vehicles

Stocks are shares of ownership in a company. Shareholders are entitled to a “share” in the profits of the company. Those profits are called dividends and are paid to shareholders.

Stocks are volatile and fluctuate in value on a daily basis. When compared to most other investment vehicles, stocks provide relatively high potential returns but also assume the risk of losing some or all of your investment due to volatility of the markets.


Grouped under the general category called fixed-income securities, the term bond is commonly used to refer to any securities that are founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out.

The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-free. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities.

Mutual Funds
Mutual funds are an investment that allows you to pool your assets with a group of people in a diversified portfolio of stocks, bonds, or a combination of stocks and bonds. The assets in the portfolio are professionally managed to achieve a specified investment objective, such as growth or income.

The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose specific stocks or bonds.

An annuity is a contract between an insurance company and you in which a sum of money is deposited for a specified period of time. In the accumulation phase, the funds grow tax deferred. During the income phase, income is paid for a specified period of time.

IRAs: Traditional vs. Roth

Traditional IRAs
A traditional IRA allows you to contribute pretax earnings up to a specific annual limit, toward investments that can grow tax-deferred until the money is withdrawn after age 59 1/2. Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status and other factors. Minimum annual distributions from a traditional IRA are required beginning at age 70 ½.

Roth IRAs
A Roth IRA is a modified individual retirement account in which a person can set aside after-tax income up to a specified amount each year. Contributions can be withdrawn any time tax free and penalty free. Earnings on the account are free from federal income tax after an initial 5 year holding period and after age 59 ½. No minimum annual distributions are required from the Roth IRA.


Insurance is a vital component to a comprehensive wealth management plan. For individuals and families, for owners and employees: intelligent financial planning always includes balanced insurance. Too much insurance and you pay unnecessary costs. Too little insurance and you leave yourself and your family’s wealth exposed. A complete insurance review is an important step as you accumulate wealth.

Life Insurance
Coverage that provides payment to a beneficiary upon the death of the insured. Some life insurance policies provide tax-deferred cash buildup that can be withdrawn by the policy owner.

Health Insurance
Insurance that provides protection to the insured for expenses or loss incurred for medical reasons such as illness or hospitalization.

Disability Insurance
Insurance which provides income to a policyholder who is disabled and unable to work.

Long-Term Care Insurance
Coverage that pays for required assistance when an individual can no longer take care of themself due to illness or prolonged disability.

College Savings Plans

There are many ways to save for your children’s college education. The 529 College Savings Plans, Coverdell Education Savings Account (ESA) and UGMA/UTMA Accounts are all great ways to save for educational expenses.

529 College Savings Plans
A 529 Plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary. Each state offers its own plan, and each state’s plan is available to non-residents. These plans provide valuable tax incentives, including the potential for tax-free growth and with some plans, like the Iowa 529, a state tax deduction for contributions. These plans offer an excellent tool for tax-free wealth transfer as anyone can establish and contribute to a 529 plan on behalf of a designated beneficiary (typically one’s child or grandchild). Contributions are made with after-tax dollars and earnings grow free from federal income tax. Qualified withdrawals are free from federal taxes. In addition, the owner maintains control of the assets.

Coverdell Education Savings Account (ESA)
This is a savings account that is set up to pay for qualified education expenses of a designated beneficiary, a child or a grandchild. Contributions are made with after-tax dollars and are limited to $2,000 per year per child until the child reaches the age of 18. Contributions are phased out for higher income levels. Earnings grow tax-free. They can be used to pay not only higher education expenses, but for expenses for kindergarten through high school as well. Qualified withdrawals are free from federal income tax. The beneficiary may assume control at age of majority.

You can save for a child’s college education under the Uniform Gifts to Minor Act (UGMA) and/or Uniform Transfers to Minors Act (UTMA) which offer a means of transferring ownership of property to children. Both are custodial accounts: the child is the account owner, but the parent (or other adult) is named custodian. The custodian controls the account until the child is no longer a minor. At that point, the custodial relationship ends and the child controls the account. UGMA/UTMA accounts can be rolled over into 529 plan accounts, which offer more generous tax benefits and account ownership flexibility.