Broker Check
Market-Based vs. Promise-Based

Market-Based vs. Promise-Based

January 13, 2023

When it comes to investments, you have a choice of market-based or promise-based assets. Both options have their own distinct pros and cons, and we believe the best portfolios ultimately have a little of each. Here's what you need to know to help make your investments wisely.

Market-Based Assets

Market-based assets, also referred to as opinion-based assets, are investments that fluctuate with the state of the market. They don't have a guaranteed value and can be subject to greater volatility. Market-based assets can deliver profitable growth, but they come with risks. Your advisor can help you determine how much risk you're comfortable with. Market-based assets include:

  • Stocks
  • Bonds
  • Exchange-traded funds (ETFs)
  • Mutual funds
  • Real estate1
  • Businesses1

The value of a market-based asset relies on the opinion of others, so it can change at a moment's notice. For example, if a news report predicts a decline in the technology sector, this unproven opinion may cause the price of tech stocks to fall. You must speculate when you invest in these assets, as there's no concrete way to determine how they'll perform.

Promise-Based Assets

Promise-based assets deliver the promise of future benefits, but don't enjoy the advantages of a market on the rise. These assets have a contractual guarantee on the return of principal, sometimes with additional income. Promise-based assets include:

  • Cash-value life insurance policies2
  • Certificates of deposit (CDs)
  • Treasuries or corporate bonds held to maturity3
  • Certain guaranteed annuities2

These assets may provide tax benefits until you receive compensation. Promise-based assets don't fluctuate directly with the market, so you know exactly what they're worth at all times.

How to Decide Between Market-Based and Promise-Based Assets

If you have a surplus in your budget, you should begin exploring investment options. You can use your surplus to fund future goals such as retirement, a vacation home, or a college education for your children. As you're making the choice between promise-based and market-based assets, you should consider how much risk you're comfortable with and when you ultimately want to cash out on these funds.

If you're looking for a low-risk investment that you can cash out in a short amount of time, you could consider a promise-based asset like a CD. You will always know the exact worth of this investment, so you don't have to do any guesswork or worry about a major financial loss. If the "when" for your funds is tied to a particular event, you may want to pursue a specific type of promise-based asset.

If you're willing to take more risk and you don't need to access your funds in a short amount of time, a market-based asset may just meet your needs. Wisely investing in stocks, bonds, and similar assets have the potential to yield great returns if you're willing to play the long game.

The appropriate portfolio includes a careful balance of both types of assets. If you're unsure how to allocate your funds, or what level of risk you're comfortable with, our financial advisors can help. We deliver the knowledge and experience you need to help make the most appropriate decisions with your money.

All investments contain risk and may lose value. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Past performance is not a guarantee of future results.

1Real Estate and Closely Held Business that are not securities products do not trade on exchanges and may not be correlated to any securities market movements. These market segments maybe be illiquid and have risks that are unrelated to securities markets.

2All guarantees including the death benefit payments are dependent upon the claims paying ability of the issuing insurance company.

3Investing in the bond markets is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bond investments may be worth more or less than the original cost when redeemed.

Dave Parkes, CFP®, RICP®


Dave works with hundreds of Bay Area dentists, physicians and their families. He has a deep understanding of the financial needs of the medical/dental practitioner. He makes planning simple and clear by coordinating both business and personal finances for his clients.

He also works with Silicon Valley executives, professionals, and their families.

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