Wealth Advisor in Houston Asks Important Question: What’s Your Purpose for Investing?

When you discuss investment strategies with a financial advisor, it’s important to understand your purpose for investing. Why? Investments, like so much in our financial life, are not one-size-fits-all. The choices, the strategies, the timing and more all depend very much on your purpose and goals.

While you may assume the goal, generally, is to grow your assets, yet as you get closer to relying on your investments to live a comfortable lifestyle, your focus can change, putting more of an emphasis on preserving your wealth. One of retirees’ biggest fears is outliving their money!

When creating an investment portfolio, your funds will be divided among asset classes. The most common asset classes are stocks, bonds and cash, although there are other choices, such as real estate, commodities, precious metals and so on. 

Asset classes are usually chosen with an eye to your investing purpose. It may be helpful to review the most common purposes for the various asset classes of stocks, bonds and cash: Asset growth and asset preservation. 

 

Schedule a no-obligation conversation with the wealth advisors at Linscomb & Williams to see how we can help.

 

Growth 

Most people want to see the money they’ve invested grow! If you didn’t, you’d keep it in a mattress, right? 

When you prioritize growth, it means that you’ve accepted some risk as the implicit part of that growth. The stock market is volatile. The price of any particular stock typically fluctuates every day. The price can move up, down or sideways (that is, be flat). At times, the drops in price for individual stocks or the market in general can be extreme. A decrease in prices of more than 20 percent is how most market observers define a "bear market"; historically significant bear markets have occurred in 1929, 2002 and 2008, when the S&P 500 dropped more than 37 percent

This potential for stocks to drop during a given time period is one of the important potential drawbacks of growth investments. However, do potential stock market declines mean you can’t invest for growth? No! It just means you should be mindful of certain factors. The first and most important is timeframe. If a particular pool of assets is set for significant drawdown in a near-term time period, this risk of decline for stocks in short periods of time presents an important planning challenge.

The second important issue is asset allocation. 

Perhaps surprising to some, most investment portfolios (at least those for the majority of clients at Linscomb & Williams) are not solely invested in stocks, but in a blend of assets suitable for your particular goals and situation (defined by such factors as age, income, family responsibilities and more). 

The key is finding the right balance between growth-oriented asset classes like stocks and more conservative assets like bonds/cash that emphasize preservation of capital.

Preservation of Assets 

Additionally, a key purpose of investing is preservation of assets. In other words, if you have $1 million, your primary goal is maintaining it, or preserving its value over growing it. 

Preservation of assets is often the goal for investments with short time horizons, such as funds you are going to be using to live on in retirement. But this isn’t always the case, especially if you got a late start to retirement planning.

Talk to a wealth advisor to see what makes sense for you. 

Risk Involved

Any investment carries some kind of risk, and it’s important to be aware of the risks you are taking on.

The risks of cash assets may seem minimal – the principal doesn’t fluctuate and cash can even be insured! However, there is risk, just the same. The risk in capital preservation is that your investment returns may not keep pace with inflation. Interest rates on bonds and cash are at historically low levels. Inflation in the U.S. has runs at about 2.5 percent per year over the long-term, and your yield on bonds and cash may be below that. 

In other words, the risk with cash is that you could lose the purchasing power of your money. Inflation means that your purchasing power drops. You may preserve capital of $1 million, but in 10 or 20 years, the purchasing power of that $1 million will not be what is today. Read our recent blog post: The Stealth Assassin of Your Best-Laid Retirement Plans.

To minimize this particular risk, work with a wealth advisor to create a portfolio that is diversified among asset classes, with the focus on wealth preservation. Understand your risk tolerance and how you’d feel if the stock market dropped. There are multiple ways to manage risk.

How the Linscomb & Williams Team Can Help 

At Linscomb & Williams, we want you to feel confident about your financial future. This means feeling confident about where you are, where you’re going and how you’ll get there. It means feeling comfortable with how your money is invested and the communication you receive from us about how your investments are performing. We want you to feel supported and secure. 

As a fee-only, fiduciary financial planning and investment management firm headquartered in Houston, Texas, we have half a century of experience helping families in Texas, Georgia and Alabama (and nationwide, for that matter) build, preserve and manage their wealth. Together, we can help you plan an investment portfolio that meets your purpose, maximizes your goals and works with your level of risk tolerance.

Not all financial firms can or will do this.

The Internet has brought investment opportunities to the masses. However, the tremendous strides in investment technology are not matched by easy access to expertise. In fact, the ability of people to put themselves “out there” as financial experts to the masses can actually make it difficult to discern the real financial advisors from the pretenders. It can be difficult for investors to identify true financial support.

The wealth advisor you choose to work with may be more important than the investments you choose for your portfolio. 

Ask questions. Do your research. Make sure the person you work with has your best interests at heart and understands your purpose for investing and saving. 

If you’re currently working with someone and would like a second opinion about where you stand, don’t be afraid to ask! Too many investors stay status quo for fear of the uncomfortableness that can come with seeking another opinion, but remember, it’s your future that’s at risk. It’s you who is taking the risk. It’s you who has to live with your decisions. A second opinion can validate your feelings and ensure you’re on the right track. It can also help you identify areas where you may need help. And that can be a game-changer! 

The team at Linscomb & Williams is here to help. Schedule a no-obligation conversation to see where you stand.

 

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Nick Ibanez, CFP®

Nick Ibanez, CFP®

Nick Ibanez is a principal and wealth advisor at Linscomb & Williams.

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