Establishing a solid investment strategy is about more than achieving a certain rate of return; it is about establishing a source of funding to support your lifestyle and future goals. Without a solid investment portfolio, it can be difficult to generate retirement income, keep up with inflation and leave a financial legacy for future generations.
At United Capital Financial Advisors, we develop custom investment strategies to help each client achieve his or her short- and long-term goals. Here, we have highlighted our approach and how it can support you in achieving your vision for the future.
Key takeaways
- It is important to have a financial strategy built around your goals.
- You may want to consider establishing a source of short-term income while also investing for growth.
- A qualified financial advisor can help ensure your investments and goals remain aligned.
Our approach to investing
Using your financial plan as a guide, we work to determine how much money you may need to support your lifestyle goals over the next decade, and we make a plan to continue growing your assets long into the future. This includes dividing your assets into two separate allocations:
- A short-term allocation to cover your expenses for the next 10 years –This is typically invested in safer, more liquid assets, such as bond funds. This allocation serves as the main source of funding for your daily living expenses. You can access it at any time without being forced to sell out of the market during a downturn, which can help you avoid locking in losses that can be difficult to recover from.
- A long-term allocation focused on growing your assets over time – Once we have established a way to fund your short-term needs, we look for opportunities to invest your additional assets in a diversified growth portfolio. The goal of this portfolio is to enhance your long-term wealth building potential while protecting your assets against the impact of inflation. While this portfolio will be in line with your overall risk tolerance and investment objectives, it can be invested in riskier assets with higher growth potential, because your short-term account is in place to support your living expenses over the next 10 years.
As opportunities arise, your financial advisor will recommend appropriate times to transfer assets from your long-term investment account to your short-term savings in a tax-efficient manner. This practice allows you to maintain an adequate balance to support your daily living expenses while avoiding the need to sell your investments during periods of market volatility.
The importance of diversification
While it is important to continue investing for growth, it is also important to mitigate portfolio risks as much as possible. One key way to limit potential risk is by establishing a diversified mix of investments. Because different asset classes tend to perform differently under various market conditions, a diversified portfolio helps ensure that when one type of investment is performing poorly, a different type of investment that is performing better can help offset overall volatility.
Your financial advisor will help you diversify across a mix of investment types, asset classes, sectors and regions.
Keeping fear out of the investment decision-making process
When you are making financial decisions without the input of your partner, it can be easy to allow fear to take over and drive your decision-making. Whether you worry about short-term market fluctuations or simply have a low tolerance for risk, fear can drive you to make decisions that may not be in your long-term best interest. For example, fear-based selling during a period of market volatility has the potential to derail decades worth of portfolio growth. After all, when you sell an investment at a loss in order to avoid market volatility, not only do you lock in those losses but you can also miss out on the opportunity to benefit from a future upswing in the market.
Rather than make fear-based investment decisions, work with your financial advisor to establish a diversified asset allocation that is in line with your long-term goals, risk tolerance and time horizon. This way, you can rest easy knowing your portfolio is specifically designed to withstand future market volatility.
Establishing different accounts for different needs
Another great way to take control of your investments is by establishing separate accounts for different purposes. For example, based on your financial goals, you may decide to establish the following account types:
- Emergency fund – The easiest way to start is with an emergency fund. You should have at least three to six months of expenses saved in a liquid account to cover any emergencies.
- Retirement accounts – If you have not yet retired, the sooner you start saving, the better off you will be, thanks to the power of compounding interest. While it may seem counterintuitive to start saving for retirement before more immediate needs, an early focus on retirement savings is vital to your long-term financial security.
At a minimum, be sure to contribute enough to your employer-sponsored retirement plan to receive your full employer match. Also consider opening a traditional and/or Roth IRA to maximize your savings. - 529 college savings account – If your goals include paying for college expenses for your children or grandchildren, a 529 plan is a great way to start. These plans allow your money to grow tax-deferred. And as long as the assets are used to pay for qualified education expenses, withdrawals are free from both federal and state taxes.
- Investment account – As I mentioned earlier, it is important to invest a significant portion of your assets for future growth and inflation protection. Within this account, you will want to select a diversified mix of investments based on your risk tolerance, financial goals, time horizon and more.
Could you use some help evaluating your investment portfolio after losing your spouse? I would love to have a conversation.
Whether your spouse passed away weeks ago or many years ago, it is natural to feel lonely, confused and vulnerable. While there are many challenges to face as you enter the next chapter of life, my hope is that I can make things a little easier by helping to guide your financial decision-making. Please reach out to schedule a conversation.
