There are times you hear the phrase, “markets in everything.” What this catchphrase refers to is the investment instruments available in every aspect the market offers. The “market” pertains to all the investment vehicles available. It refers to the actual transactions between buying and selling of any particular item or company. “Markets” pertains to all the different vehicles or variations available within the “market”.
A balanced portfolio should include several instruments in various types of markets. If you had markets in everything, this would mean you were invested in stocks, bonds, commodities, real estate and cash. There are varieties of sub-categories within each major investment vehicle.
If you invest in stocks, you are investing an interest in specific companies. These equities can be blue chips, consumer cyclical or non-cyclical stocks, financials, technologies or utilities. Within these categories, there are large growth, medium and small growth companies.
Bonds offer another alternative for the investor. Moody’s or Standard and Poor’s rate bonds according to their risk. Corporate bonds earn a higher yield but are taxable. The safest form of bond is a government or municipal bond. They are backed by the United States (US) government and are often tax-exempt.
Government bonds with the best ratings are general obligation (GO) bonds. These vehicles are offered when the government needs to raise money for specific local or state projects such as water projects, highway and bridge improvements, parks and recreation developments, prisons and utilities.
The GO bonds do not rely on any specific revenue generated to pay back bondholders, but are insured by the state of issuance. Revenue bonds are for specific projects that will be responsible for paying back their bondholders through tax revenue generated by that particular project.
Commodities account for all agricultural goods and precious metals like gold, silver and platinum. Specialized markets trade specific commodities such as corn, coffee beans, soybeans or wheat. General commodity markets may include any variation of commodities. Derivatives and futures provide management instruments and forward trading for these contracts at some future date.
Rarely considered when investing in markets in everything is the real estate market. Because it is a tangible asset, real estate is uniquely separate from the trading markets. The exception is that you can buy into the real estate market through real estate investment trusts (REITs), and real estate partnership units. These are traded like stocks. Precious metals offer comparable mining shares.
Cash should always be included in your portfolio with certificates of deposit (CD’s), money market accounts, passbook accounts and money market funds. These instruments allow for quick assess to your money should an emergency occur or a buying opportunity present itself. They also are important to markets in everything because they provide overnight cash and short-term debt financing to all aspects of the business and financial world. Most corporations depend on them.
Index funds offer a composite of stocks that earmark a particular area of investing. You can purchase an index fund for the S&P 500, the NASDAQ, utilities, technologies or a variety of other preferences. This allows you to have markets in everything for a specific sector.
Mutual funds are a composite of individual stocks that do not involve any particular sector. They are another way to have markets in everything, as many of them will include bonds, REIT’s, and even gold and other precious metal stocks. Mutual funds can include any combination of market vehicles. As with most instruments, they are offered as domestic or international securities as well.