As Labor Day approaches, which is the celebration of the contributions workers have made to the strength, prosperity, and well-being of our country, we wish you a relaxing long weekend and a bit of a respite from working.
Jerry Seinfeld once said, "I don't want my money working hard. I just want it to take it easy and relax."
I personally think it is okay for our money to do a little work.
That being said, there are different types of "work". For example, there is "Hard Labor". Digging ditches for 8 hours straight in the blazing sun and then there is "Easy Labor". Sitting in front of a computer in an air conditioned room writing a blog article.
Our money should fall into the same types of work. Got 20 years until you retire plus another 30 in retirement? A good "Hard Labor" job might be to be invested in in a diversified portfolio of great companies in the US and around the world. (Of course investing in stocks and bonds carries certain risks and one should understand those risks thoroughly before investing)
What if you are buying a house in two years and you have $100,000 saved toward a down payment? How hard should this money work? Not very hard. Here's a good example of Seinfeld's example. This money should take it pretty easy and chill. Maybe a boring FDIC insured account that earns a little bit of interest. Sound boring? It should.
You see, in these examples, we don't "need" the retirement money for a couple of decades and beyond, but we do need the home purchase down payment in a couple of short years.
I have spoken to folks over the years that have this backward. They want to invest the money needed short term in a stock based portfolio. The problem here is stocks of great US and overseas companies, when not invested for that longer term period, can lose value. I know I'd lose a bit of sleep if I needed that whole 100k to buy the house and when the time came it was only worth $75,000.
The same applies for a college education for your son or daughter. Got 18 years until they go to school? Well, you can afford to be a little more aggressive than if they are a junior in high school.
By having our money in different "buckets" we can help ensure the closer our need is, that the possible risks are factored in and align that with our time frame.
We will help you determine what's best for you based on YOUR situation.
I'm here to help.
All the best.
Rick Fingerman, CFP®
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.