Investment Planning
Making The Case
- Investing is about putting yourself in a position to weather the storm, and play offense at the same time in the appropriate areas. Determining how much money you have in stocks, bonds, and cash will drive how much growth you see during good years, and how much you may lose in bad years. It is important to make sure that the uses for your money and the current allocation of your money are well aligned.
- Markets are constantly changing and require a tactful approach to take advantage of opportunities when they arise, and stay away from investments that don’t make sense.
- Did you know that the type of account you hold an investment in matters?
For example, a dividend stock produces taxable income. If held in a taxable account, the tax bill created every year can weigh on your returns. Holding these types of stocks in your IRA can shelter those dividends and make your tax bill more manageable.
- Furthermore, different types of investment strategies are required to handle their gains differently, and can result in differences on your tax bill.
For example, mutual funds are required to distribute capital gains every year. These capital gains can be triggered in down years if other investors are selling, thus forcing the funds to liquidate holdings and take gains. This can lead to significant tax surprises during down years on the back of longer bull market uptrends.
How We Help
- We design portfolios to balance your short-term needs with your long-term objectives. By holding the right amount of cash for your imminent needs, bonds for longer-term needs, and stocks to provide the growth needed to fight inflation over time.
For example, a client who plans to purchase a home in the next 12 months may want to consider setting that money aside in something secure. Any yield that they generate should be a secondary concern to the preservation of principal, unless they are willing and able to push the goal further out if the markets don’t cooperate.
- Markets are constantly changing and require a tactful approach to take advantage of opportunities when they arise, while staying away from investments that don’t make sense.
For example, in the 2020 and 2021 fallout from Covid-19, bond yields were at near-zero. During this time, the flexibility of cash was worth more than the interest on bonds.
Another example, in 2022 as the federal reserve was hiking rates, savings interest rates skyrocketed. Clients who were able to redirect their required cash reserves to treasury bonds or money markets were able to increase yield considerably.
- It’s important to invest with proper “asset location”, which refers to holding the right investments in the right accounts. We work with clients to determine the goal for each account, what that means for the risk profile, and then go one step further to determine what other considerations may need to be made around the type of investments that make the most sense.
For example, a client may have a Traditional IRA that grows tax-deferred and won’t be needed for many years. They also have a taxable brokerage account that they may need in the next 10 years. This person may want to consider putting their income investments in their taxable account for current income and stability, while holding growth assets in their IRA for long term growth potential.
Conversely, another client who does not plan to use either account for a long period of time may want to consider putting the income investments in the IRA to shelter the income, while leaving growth assets in the taxable account for growth with only a small amount of taxable income being recognized.