At Dreher Capital Management, we help clients formulate an Investment strategy to allocate financial resources between fixed-income and equity investments, we divide investments into four risk-based categories;
Level I: Conservative Income Investments
Investments in this category include cash, Government and corporate bonds and notes rated in the top four investment categories by Moody’s and/or Standard and Poor’s and mutual funds investing in these securities.
Level II: Aggressive Income Investments, or Income and Growth
Investments in this category include utility stocks and stocks of companies providing special situation income opportunities, as well as non-investment grade bonds. More examples include preferred stocks, convertible debentures, Real Estate Investment Trust, and mutual funds which invest in these securities.
Level III: Conservative Growth Investments
In this category, investors place their principal at risk in exchange for the possibility of higher returns than are generally available in the Conservative and Aggressive Income categories. Investments include common stocks of larger domestic corporations (larger in both sales and capitalization). This category also may include securities which are convertible into equities, and mutual funds investing in these securities. Although investments in this category pay dividends generally, they are expected to return more from price appreciation than from current income, so they tend to exhibit more volatility than investments in the Conservative and Aggressive Income categories.
Level IV: Aggressive Growth Investments
Investments in this category include stocks of smaller domestic companies and foreign corporations. Most investments in this category pay little if any dividends, and investment gains thereby are expected only from price appreciation, so volatility is generally higher than for investments in the Conservative Growth category. Mutual funds buying these securities also may be used. Further risks in this category can include the limited liquidity characteristic of smaller capitalization companies and fluctuations in foreign exchange rates, as well as the success(or lack thereof) of the currency hedging techniques employed by mutual funds buying foreign securities.