It’s all about balance when it comes to investment planning. In this video, Paul Sydlansky, CFP®, shares about aligning your investment strategy with your life goals and your comfort with risk. Whether you’re investing for short, medium, or long-term objectives, Paul provides insights to help you make informed choices.
Topics Discussed:
- Aligning Investments with Life Goals
- Importance of Time Horizon
- Understanding Personal Risk Tolerance
- Navigating Market Risk
Transcript:
Hi, everybody. I’m Paul Sydlansky, and welcome to Episode 8 of The Build, our 24-part planning series where we walk you through step by step, what it’s like to build a plan with Lake Road Advisors. In today’s episode, we’re going to talk about some of the criteria that you need to consider when investing for your specific goals.
Whenever we think about investing, we need to first understand what we’re investing for what we’re trying to achieve. Whether that’s for retirement, whether that’s saving for a new home, whether that’s college education, the first thing you need to consider is what’s the actual goal.
The next thing you need to consider is the time horizon of that goal. Is it a short-term goal or a longer-term goal? The time that you have to invest is going to be one of the major things that dictates the actual strategy. For example, if you’re going to retire in 30 years, your time horizon is really long, or if you’re going to send your child to college, and that goal is maybe 5 or 10 years away, that’s more of a medium-term goal. A shorter-term goal might be buying a new home in a year or two. Understanding what the time horizon is for the goal is the number one thing you need to consider when thinking about your investment strategy.
The second type of factor you need to consider is really going to be your own personal risk tolerance. Now, going back to the retirement example, if it’s 20 to 30 years away, that’s something that would be a relatively risky type of investment, because you have a long time horizon, and you’re not going to be needing the money in a year or two. This is long-term money, which means you could take more risk and you could afford more of the ups and downs. For a more medium-term goal, which we think of about maybe 10 years, that’s money that you’re probably going to want to take some market risk and invest in stocks. But at the same time, you’re not going to be as risky as a 20 or 30-year goal because you don’t have as much time to handle the market’s ups and downs. And then for the more shorter-term goal, you really want to understand, does it make sense to even take any market risk? So at Lake Road Advisors, if you’re planning to buy a home in a year or two, we strongly believe that that money should mostly sit in cash because there’s no real added benefit for taking that huge risk that the market could oppose in an up or down year. Either way, it’s just not worth it. So understanding the time horizon is really crucially important.
And then the last factor you need to consider is your own personal risk tolerance. For the retirement goal, you may not be as comfortable being at 100% equities. Even if your time horizon is 20 years, you really need to understand how being in 100% equities affects the volatility of your portfolio and understand what that means for returns. The stock market historically averages about 8 or 9% per year, but that does not mean you get 8 or 9% return every year. You can have years when the market’s up 20% and the market’s down 20% Understanding that is critical. And understanding how you handle your own personal risk tolerance. Are you going to be able not to look at your account, or you’re going to be able to say, okay, my retirement is really far off. I don’t need to worry if I’m down 5 or 10% because this is future money. If you know that’s going to be difficult for you to do having a portfolio in 100% equities is probably going to be really difficult. On the flip side, for a shorter-term investment, you probably want to be in mostly bonds and a little bit of stock because having that exposure may not be worth it. And the downside or the possibility of loss might not be worth the upside.
If you have any questions about your own personal risk tolerance, feel free to reach out – we’re happy to help. If not, we’ll see you next time on Episode 9 of The Build.
Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
