Once you have identified your goals, the related investment timeframe should become clear. The timeframe should then guide how we develop the investment strategy for these goals.
If you have a newborn or a young grandchild for whom you want to save for college, your timeframe is 18-20 years. You have adequate years to ride out the inevitable down periods of the stock market. Thus, you should allocate a significant amount of the assets, such as 75-80% of the investable assets, to a globally diversified stock portfolio.
On the other hand, if you are planning to do a significant house renovation in the next year or have a child or grandchild that will be entering college very soon, you should be very conservative. You should have all or most of the estimated needed funds in cash or other fixed income. Almost all of the assets should not be in stocks. And, you may want to have additional extra funds saved, to handle unexpected costs.
We think of these concepts has having various “investment buckets.” The short-term buckets, for your short-term goals or needs, would be invested quite conservatively. For your long-term goals or buckets, you have the time frame to have a greater stock allocation, as you have more time to deal with the stock market volatility or short-term underperformance.
While this sounds good on paper, or theoretically, it can be hard in real life. It can be especially difficult for those dealing with retirement issues. We can set an appropriate asset allocation and investment plan with a client, which we all agree upon after discussions and analysis. But then the reality of a down stock market tests your confidence. It may raise questions and doubts in your mind. You may get concerned or worried. Should we change plans? Will this work out? Will we have enough money to retire and live on?
No one can predict the future, particularly regarding the stock market returns. This can make it hard for you to be confident about your financial future. The best remedy for this issue is for us to have conversations. You can ask questions which are concerning you. We listen to you. We review and talk and provide you with our insight and thoughts. We can re-explain our consistent and long-adhered to investment strategy.
The goal of these conversations is to provide you with more confidence and clarity about the future, uncertain as it may be. We have repeatedly found that these types of conversations are very worthwhile. Invaluable. They enable you as the client and investor to express your thoughts and questions, and allows us to listen, respond and explain. It works. For both of us.
When there is a short term goal, or investment bucket like a house renovation in a few years, the planning should be straightforward. There should be great clarity and confidence, if handled properly.
For long term goals, like retirement and your estate planning, with so many unknowns and 20-30 year time horizons, your clarity and confidence levels can ebb and flow over time. Like a long-term personal relationship, working towards long-term financial goals requires lots of work and conversations. Through these efforts, the relationship can strengthen. Your confidence improves. You feel better, even if the world around you has not changed much. But your perspective and outlook changes.
This is our role. This is the added value we bring to this relationship, to enable you to reach your goals with more confidence and clarity.