It’s a common question: What percentage of net worth should be invested for long-term growth? Some investment management firms will offer a complicated equation or present you with a number you may not understand. We don’t!

 

Everyone’s situation is different, from their income and savings to their dependents to their retirement plans and financial goals. So when you ask our team the above question, there is no one standard answer. Instead, we use our own strategies to help clients understand how much to invest in long-term growth and how much to invest in more conservative asset classes.

The two phases of investing

First, it’s important to understand the two phases of investing. There is the working age period when you can rely on a steady paycheck for your day-to-day needs, and the goal of investing is usually growth. Then there is the retirement period, when your traditional income from employment ends and the goal of investing is no longer just growth, but also generating income to meet your spending needs.

In our experience as an investment management firm, it is this second phase (retirement) that is the most complex. For many of you, the main concern is, where will my retirement income come from? The next question is how can you balance the need for income with the desire for growth?

If you are planning to retire, it is important to know how you are managing your investments so that you always have a “paycheck” available? Equally important is how to get that paycheck while allowing your money to grow to its maximum potential. At our firm, we help clients allocate their money appropriately to achieve the desired results.

A certain percentage should go towards your short-term goals, those you want to achieve within a year or less. A certain percentage will then go towards your medium-term goals, those you want to achieve in one to seven years, and the rest will be used to grow your portfolio.

This allocation provides clients with the security of knowing they have enough money to maintain their lifestyle, the flexibility to draw from the market when times are good (or not, when it would be better to experience a full market cycle), and the ability to maximize the growth potential of their overall portfolio.

Not only do the purposes of investing differ, but the goals differ as well.

First read investments should cover one year’s expenses. The emphasis is on stability, not growth. It may have a low return, but the money is safe and liquid. This part is supplemented by dividends and interest from the other parts.

Medium-term investments should include spending for two to seven years. Strategic investments will offer higher returns than those in the short term.

The last – growth – investments should include all other assets. This section invests in our long-term growth ideas with the highest conviction.

We need to decide how much to allocate to each section and, more importantly, how to invest it. This can be quite difficult. So which investments make sense?

At our firm, we use these investment splits to give clients more control over their money. For example, if you have an appropriate allocation and, for example, growth investments go down, you can draw on that portion for transitional investments and not have to sell stocks or other alternative investments to meet your short-term income needs. If growth assets are strong, you can use those assets to supplement the other investment portions.

How a financial advisor can help

As an investment management firm, this is how our firm can help you:

• review your situation and ensure that all of your assets are included in your investment strategy
• correctly allocate individual investments
• Stay on track when the values of your investments change due to expenses and market volatility.

There are many things to consider when investing, especially in retirement. For example:

• Have you considered all of your retirement income, including rental properties, pensions, Social Security, retirement accounts, etc.
• Have you adequately maximized your returns in each investment?
• What happens if you don’t achieve sufficient returns?
• What if retirement comes sooner than you expected?

If you’re not sure of the answers to the above questions or don’t have the time, energy or interest to make sure you’re on the right track, lean on someone who does!

Investing can seem easy, fun, even exciting – especially at first! However, consistently making the right decisions can be confusing, complicated and, if done incorrectly, can have a major impact on your future. Take the right path and get advice from one of our experts to make your future as bright as your present.