What goes into a quality investment?

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Of all the factors to consider when investing, Edward Jones believes quality is one of the most important – but it’s also one of the most overlooked. While the promises around today’s “hot” investments can be enticing, there are no free lunches when it comes to investing. Markets will always go up and down, but we believe quality investments are more likely to overcome temporary challenges and ultimately help you meet your financial goals.

For some investments, there’s an easy way to measure quality – but for most, it takes some work. Here are some things to consider:

  • Stocks – Since stocks have larger price fluctuations than bond investments, quality is frequently measured by the steadiness of earnings and dividend growth over time, since your total return is the combination of dividends and capital gains.
  • Bonds – A good measure of quality is an “investment grade” credit rating, which indicates that the borrower has a good track record of making its promised interest and principal payments.
  • Managed investments – Quality mutual funds and exchange-traded funds (ETFs) generally rely on a team of investment professionals to allocate across multiple investments with the goal of improving diversification. Quality funds also tend to have reasonable fees and expenses.

Fads vs. fundamentals

If you’ve received any tips on today’s “hot” investments, especially if they’ve already performed well, the best advice we can offer is this: Ignore them. Although it may be tempting to buy a popular investment, it may not fit with the rest of your portfolio, and it may be riskier than you expect. When it comes to investing, if it sounds too good to be true, it probably is.

Although investment trends and fads come and go, Edward Jones’ set of business principles remains the same. Your financial advisor will work with you to identify quality and a well-diversified portfolio that aligns with your long-term goals, time frame for investing and risk tolerance.