By Kristin Hovencamp, CPWA®
I am commonly asked, “Given today’s markets, where should I invest my cash?” That’s a loaded question. Each person’s circumstance is unique, and there is no one-size-fits-all response. Before making any investment decisions, formulate answers to the following questions.
What keeps you up at night, specific to your finances?
Most everyone feels money-related anxiety. According to the National Endowment for Financial Education, “Money woes are the number one reason more than 50% of adults in the United States cannot sleep at night.”
How did you react to previous market crashes?
Do you recall how you felt on October 19, 1987, commonly called Black Monday? That infamous date set in motion investment losses worldwide estimated at $1.7 trillion. How about the 2000 dot-com bubble burst or the 2008 Great Financial Crisis? What was your emotional reaction when you dared to look at your 401(k) or other investment portfolios? You might not recall each specific event, but I imagine you do remember the feelings of financial fear you experienced.
How much would you be willing to lose?
Markets hate uncertainty, as do most investors. How much time do you have to recover from significant losses? Research has found that financial comebacks often take years. Many investors do not recover from their setbacks. Can you ride out a bear market if your investment horizon is not long-term?
Black Swan events occur more frequently than every 100 years. Suppose you’re already retired or nearing that path; set aside enough cash for your liquidity needs. Invest an agreed-upon percentage of your portfolio in income-generating securities and another portion in growth investments that can keep pace with inflation. Allow an extra cushion for joyful expenditures and unexpected expenses. Detach yourself from the market mania and expose your portfolio to no more volatility than you need to accomplish those objectives.
Kristin Hovencamp, CPWA® is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605.