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By Kevin P. Boland, Donnelly-Boland and Associates
One of the most common questions I hear as a Financial Advisor is “What would be a good investment for me?” That’s a difficult question to answer without knowing the investor’s purpose or objectives. The time horizon for the investment is a critical element in answering this question. Money that won’t be needed for thirty years or more can (and should) be invested differently than savings for an emergency fund or other shorter term objective such as buying a house or planning for a child’s college education bills. Most people have a need to save for a number of different objectives.
The best way to plan for these different objectives is to break down the investment timeline into three distinct groups: Short-Term, Intermediate-Term, and Long Term. Different types of investments are appropriate for each of these groups and can serve to limit changes in value due to highs and lows in the market.
Short-Term (0-24 months)
The first step would be to work with an advisor to determine the amount of money you will need to live comfortably over the next two years. This may change if you are nearing retirement. For those who are still working, short-term investments are often viewed as a rainy day or emergency fund. The focus with this group is on capital preservation and minimizing the risk of loss. Yield is sacrificed for principal protection. Cash, money market funds, short duration bond funds and other liquid investments are typical for this group.
Intermediate-Term (The next 3 to 6 years)
The second grouping will include assets that will generate the income needed for the next several years of your life. This intermediate-term will deal directly with managing risk in a way that makes sense for your investment goals and for your investment preferences. While protecting the principal investment is always important, investments in this group are likely to involve more risk but generally have more potential for growth than those in the short-term bucket.
Long-Term (7 years and further)
The third and final grouping of the timeline is long-term investments. This section includes assets set aside to generate long-term retirement income. The greatest risk to a retirement that lasts 20 years or longer is inflation. To combat inflation, you will need growth of assets over time while balancing your investment objectives with the increased risk associated with those objectives.
Diversifying your investments according to your time horizons is another way of managing the risks of investing. Selecting investments appropriate for the time horizon you’ve assigned them can be an important step in achieving your objectives.
Investments are subject to market risks including the potential loss of principal invested.
Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Securities offered through H.D. Vest Investment ServicesSM, Member SIPC, Advisory services offered through
H.D. Vest Advisory ServicesSM, 6333 N. State Highway 161, Fourth Floor, Irving, TX 75038, 972-870-6000.
Donnelly-Boland and Associates is not a registered broker/dealer or registered investment advisory firm.