Joe Lucey

What does the phrase “long term” mean to you? For children, long term can mean waiting for Christmas or summer vacation that feels like a million years away. For young adults, long term may reference how long it takes to pay off student loans. As we get older, we begin to understand that long term can be a really long time – even decades. We may wonder where the years went. Suddenly we’re in our 50s, 60s, 70s or older. Long term tends to be a subjective phrase depending on what stage you have reached in life and what your goals are.

When it comes to investing, its meaning is only marginally clearer. In other words, if we’re encouraged to invest for the long term, how long is that – 10 years, 20, 30? It largely depends on what your financial goals are – a house, college tuition for the kids, retirement and so on. We take the time to help clients define their financial goals and then create strategies using a variety of investment and insurance products to custom suit their needs and objectives. Give us a call so we can work with you to help you pursue your long-term goals.

It’s worth noting that even an experienced investor can’t say for sure whether they’ve got the right mix of investments for the long term. Take, for example, Jack Bogle, the founder of The Vanguard Group. He recently responded to a question he received from a young investor concerned about how potential catastrophes would impact his portfolio. Bogle replied by sharing his own portfolio mix (50/50 indexed stocks and short/intermediate bond indexes) but said that half the time he worries that he has too much in equities, and the other half that he doesn’t have enough. “We’re all just human beings operating in a fog of ignorance and relying on our common sense to establish our asset allocation,” he wrote to the investor. 

The S&P 500 has nearly quadrupled in annualized returns since its low in 2009. Several prominent market analysts and investment firms suggest this means it’s about time for a market downturn. The question is, if you’re a long-term investor, do you sell in anticipation of a correction? After all, if the point is to buy low and sell high, it makes sense to take gains while prices are at their highest before they begin to drop. Or does it?

That’s not what long-term investing is about. The reason returns over 30 years tend to outperform those from, say, five years, is that time is what typically smooths out those periods of volatility. If we continue investing automatically, we may end up buying during those periods of price drops and we can potentially make stronger gains as prices rise again.

If we base our investment decisions on when the market will take a turn for the worse, we could end up missing out on the future gains that could have been made. Long-term investing may involve patience, unlike children who anxiously await the holidays.

Investing involves risk, including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values. It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. This information is not intended to provide investment advice. Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

There’s a difference between monitoring an investment and checking its performance on a daily basis. Rather than being concerned about short-term volatility in the market, consider the future purpose or goal of what you want your money to pay for. This is the fundamental idea behind goals-based investing. You don’t just seek out investments that will yield a certain average annual return; you identify other factors that may matter more.

In goals-based investing, it’s not about how much your investment earns; it’s about how much you need your investment to yield. For example, let’s say you need about $50,000 to pay for your child’s college education. You save diligently from the time he or she is 10 years old through his or her last year in college – 12 years. During that time, you save $37,000. Your investment needs to earn an additional $13,000. There are a lot of factors here that will determine your return, but the point is that your investment need not be overly aggressive to achieve the return you desire. It should reflect how much risk you’re willing to take to yield the amount you’ll need to pay for your child’s education. Not necessarily more. Preferably no less.

If the investment earns more, you can put those additional earnings in your retirement savings bucket. If it earns less, you may need to tighten the belt on your finances and use more current income to pay for expenses during those college years, or get aggressive about applying for loans and scholarships. The point is, an investment should align with a goal – including its timeline for when you’ll need the money. The timeline can help you determine how aggressively to invest. The longer you have to invest, the more risk you may be able to take.

Just as the timeline matters, so does your age. Young investors with a longer investment timeline usually can be more flexible at choosing riskier investments – as long as those risks are aligned with their goals.

However, let’s say your last child came later in life. If you will turn 60 before he or she goes to college, you could consider saving for his or her college education via tax-deferred retirement plans. You can start tapping these funds after age 59 ½ and no longer be subject to an early withdrawal penalty, but keep in mind that distributions will be subject to income taxes at that point.

Defining each goal you want to achieve can help guide your investment strategy, which can include the type of account in which you invest, such as a tax-advantaged college savings account or a tax-deferred retirement account. Different goals may call for different types of accounts, so you may need to create an investment strategy for each individual goal and monitor several different types of investments.

This is where we can help. We’ll work with you to define each goal, establish which type of plan is most appropriate and what types of investments suit your timeline and tolerance for market risk. Then, we’ll help monitor how well those investments stay on track as you work toward your financial goals.

When all of these factions are aligned, you can be less concerned about day-to-day fluctuations. If you think you need to save more, you might want to consider different ways you can generate additional income sources that will allow you to save and invest more.

Perhaps one of the most significant benefits to a goals-based approach is that it makes us think about what we want in life in very tangible terms. Suppose you want to retire to a coastal community. That’s your goal, and how early you get started saving and investing and at what age you’ll want your money can help determine your investment allocations. The return on that investment will ultimately decide how much house you can afford when retiring to your coastal destination. When creating your financial strategy, you should also consider the sort of lifestyle you want to provide your family and how expensive a college you want your children to attend. As with investment risk, trade-offs may need to be made in order to pursue your financial goals.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. This information is not intended to provide investment advice. Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.