Let’s talk about the investing strategies reflecting your Time Horizon and Risk Tolerance!
To remind clients to keep saving for their future selves, we try to make the investing process fun. Instead of solely announcing numbers at clients with multiple pages of legal paperwork, we remind clients to focus on what they can control with their investment accounts. To see how we do this, check out this sneak peek below of a Quarterly Email which we send to clients.
We mix up the themes each quarter, and also personally tailor recommendations for the client’s unique situations. My favorite part of these Quarterly Emails is that we attach a Paid Invoice so clients can understand how Well-Rounded Success gets paid and the amount of money which was taken out of their accounts for our services. As you can read in a previous blog post, the smoke-and-mirrors nature of the Personal Finance industry really grinds my gears, so we try to be as transparent as possible.
If you wish to explore a business relationship so you can receive this type of help, learn more at Well-Rounded Success’ Services.
Email Subject Line
3rd Quarter of 2018: Your Quarterly Email from Dan & Well-Rounded Success
Greetings <Insert Name>!
Please allow me to put on my ‘Financial Planner hat’ to discuss the below points as well as personalized recommendations for your investment account. Don’t forget to scroll down to the Tweaks For You section as well as your paid invoice.
Also, we plan to donate 2% of our annual top-line revenue to a non-profit selected by clients like you. You can cast your vote in December’s year-end survey so please be prepared to provide feedback for Dan and Well-Rounded Success so we can better help you. If you wish to nominate a non-profit for consideration as one of our three options, please let me know by responding to this email.
You can’t control the markets so we encourage you to focus on what you can control with your investment portfolio. We created a process to address the below themes when we opened your investment account and we’ll discuss all these bullet points in future Quarterly Emails.
- Consistently invest (2017 Third Quarter)
- Keep your money invested during fearful moments (2017 Second Quarter)
- Keep your costs low (2017 Fourth Quarter)
- Be diversified
- Position your portfolio to your risk tolerance and time horizon (This Quarter’s Theme)
- Systemize your portfolio to sell high and buy low (2018 2nd Quarter)
- Efficiently invest with taxes in mind (2018 First Quarter)
Let’s discuss Traffic Light Investing: Your Time Horizon & Risk Tolerance
Instead of ending a blog post with a corny joke, please allow me to start with one:
Q: If green means “go” and red means “stop”, what does yellow mean?
A: Go as fast as you can!
(That was my favorite joke when I was six years old. Yes, my enthusiasm of corny jokes began at an early age.)
Just like with yellow lights, when a deadline approaches, people tend to launch into a higher gear to play catch-up. The same goes for investors when preparing for their retirement deadlines.
The majority of regular investors are planning for retirement so let’s explain Time Horizon and Risk Tolerance through the lens of retirement planning… and traffic lights.
When envisioning your retirement planning, I encourage you to see your investing process like a traffic light.
To give you an illustration, check out this table:
Many people glide through their twenties, thirties, and forties without thinking much about retirement. Once retirement begins to feel like a real possibility, people rush to play catch-up, often coming short because they failed to take advantage of compound interest over time.
Some American statistics prove alarming where the 2017 Retirement Confidence Survey illustrates that 24% of workers and 21% of retirees report to having less than $1,000 saved for retirement. And another 55% of workers and 38% of retirees reported to have less than $50,000 saved for retirement. Yikes!
To incentivize Americans to play catch-up with their retirement savings, the IRS allows taxpayers over the age of 50 to contribute more in their tax-deferred investment accounts – like your IRAs and 401(k)s.
- For example, in 2018 for a Traditional IRA, if you’re under 50, you can contribute $5,500 of your earned income per year and if you’re over 50, you can contribute up to $6,500 of your earned income per year.
My friendly challenge to you is to make your Yellow Light years a comfortable slow down instead of a panic to catch up as fast as you can as you near retirement.
Instead of relying on playing catch-up, regularly contribute to your future so you can take advantage of compound interest and the ability to be more aggressive in your early building years.
Ongoing planning can give you the flexibility to retire when you want instead of needing to work longer to meet your retirement planning goals because you procrastinated.
When planning for your investment journey over time, it’s important to gauge two major areas of your investment portfolio. We discussed these two areas when opening your account and we’ll go into more detail here about your Time Horizon and your Risk Tolerance.
1) Time Horizon: When Do You Need the Money?
Investing for a down payment of a house in two years is different than planning for retirement in thirty years.
You want to be less risky with money needed in the near term. This bothers many people because cash is designed to be worth less next year due to inflation. Yet, having your money in less risky investment strategies gives you the peace of mind to know that the dollar amounts will be close to the same when you need the money.
- For near-term savings, do your research on high yield savings accounts, certificates of deposit, short-term treasuries, and/or in your bank account ready whenever you need the mula.
For longer term goals, like retirement, you can invest in the stock market, since you have more time to ride the waves of the market’s ups-and-downs. You’ll experience some years where your portfolio will go down, but you have the time to invest through multiple economic cycles and can have your money work for you by reinvesting dividends, compounding interest, and hopefully seeing higher values for your invested positions.
- Diversification is important to remember when planning your financial household’s long term goals. In addition to the financial markets (stocks and bonds), also consider other assets like real estate, collectibles, side companies / hustles, angel investing, and your own income.
2) Your Risk Tolerance: Aggressive, Moderate, or Conservative Portfolios?
Here’s a helpful analogy to remember for the financial markets:
Markets typically take the elevator down and the stairs up.
Recessions and bear markets don’t happen often but when they do, the stock market can take nosedives and then take some time to recover. For example, the overall US stock market (reflected by Vanguard’s Index Fund: VTSMX) peaked before the recession in October 2007 and eventually reached a bottom in March 2009. It then took until March 2012 to recover to its October 2007 levels and we’ve well surpassed that level as of this writing in October 2018.
We haven’t seen a recession in awhile but it’ll happen again. Your risk tolerance determines your portfolio’s exposure to the markets when they decide to take the elevator down again.
When building your portfolio, we discussed your Asset Allocation of stocks and bonds. As a reminder, the higher the percentage of your portfolio which is in stocks means the more aggressive your portfolio.
A table to illustrate with our Traffic Light metaphor:
It’s important to scale back your risk as you get closer to your anticipated withdrawal years. This is where I’ll nudge you to change your Asset Allocation to reflect a less exposed portfolio as you get closer to your goals.
You don’t want to be aggressive as you near retirement because a market downturn may slash your portfolio’s value. Many people experienced this mistake in 2008 where they had to work longer than planned due to the stock market’s loss in value. You can still these scars through multiple areas of our economy as well as the many individuals who experienced trauma during the 2008 recession.
- You can also turn on the “Auto Adjust” feature in Betterment to have technology do this for you. Voila, another way to take the emotions out of investing!
Your Investment Composure
When we created your investment account, we chatted about your allocation to reflect your Time Horizon and your Risk Tolerance. But let’s go a little deeper!
The technical planning of your Time Horizon and Risk Tolerance are great for textbooks, but it doesn’t help settle the nervous emotions of investing. Markets get scary and its important for you and I to both know how to best stick to your investment strategy during these uncomfortable times.
- We don’t want you to move your positions to cash at a market bottom and then miss a market rebound.
We have a new tool which comes at no cost to you! As you know, I’m an advocate to take the emotions out of investing so let’s gauge your Investment Composure.
We recently partnered with DataPoints so we can better help our clients understand their behaviors and psychology when it comes to investing. This new feature is free for clients and we’re excited to provide these resources to help you better understand your investment personality.
Now, let’s create this tool so we can have better conversations about your investment personality!
Get Your Personalized Survey Here:
<Client Name> Investment Personality
After you complete the survey, let’s schedule our review meeting in early 2019 to go over your results, your portfolio, any other money questions you may want to discuss, and to also catch up about our life journeys.
It’s my goal to help you in each one of your Traffic Light years and let’s make your Yellow Light a comfortable slow down instead of a panicked catch-up!
Some General Stats About the Markets: As of the end of the third quarter (09/30/2018), the broad-based Morningstar US Market Index increased 7.22% for the third quarter and was up 10.51% for 2018. The broad bond market (Vanguard Total Bond Market) was down 0.62% for the third quarter and down 3.52% for 2018. International Markets (MSCI ACWI Ex US NR USD) was up by 0.93% for the third quarter and down 4.52% for 2018. For more numbers, check out this link: MorningStar Quarter-End Insights.
Please let me know if you want to check-in about your goals or to refresh anything with your portfolio. I’d be thrilled to chat. I nerd-out about this stuff and it’s an honor to help you.
Tweaks For You
To be as transparent as possible, attached to this email is a Paid Invoice breaking down the money that came out of your account for our Investment Management services. This is for your reference only and there is no need for any action.
Your Returns, Quarterly Account Statement, and Tax Forms
Update From Dan
I’m getting used to my first piece of jewelry since my puka shell necklace in middle school! My wife finally put a ring on my finger when we got hitched in Estes Park, Colorado. We enjoyed a memorable wedding surrounded by great energy. A wonderful experience all around which made us wonder why we waited 4.5 years to turn our engagement into a wedding celebration!
We then zoomed away to Greece for our honeymoon. Friendly people, delicious food, beautiful landscapes, as well as lots of ancient history. Our highlight was hiking around Mt. Olympus which was one of the most beautiful hikes we’ve done so far. No wonder the ancient Greeks believed the gods lived in that area.
On a professional side, I was recently accepted to pursue a Master of Science degree in Advanced Financial Planning with Golden Gate University. These online courses are taught by some of the pioneers of Financial Planning who focus on life planning and behavioral finance. As a client, your services won’t be disrupted by my studies since these evening classes take place online. I’m excited to continue learning so I can better help you, our future clients, and our overall communities with better money knowledge.
It’s a privilege to help you and please let me know if you have any questions!
Thanks for reading and if you want guidance on how to navigate your personal finances or you want help with your investment strategies so you can receive these personalized quarterly emails, please get in touch with me or learn more at Well-Rounded Success’ Services on the website.
About the Author
Dan Andrews is the Leader & CERTIFIED FINANCIAL PLANNER™ of Well-Rounded Success. Dan enjoys guiding and encouraging millennials through their ‘adulting’ responsibilities. His behavioral-finance style focuses on helping individuals in the Well-Rounded Success community define his/her own definition of success, make good decisions, and to also be philanthropic while along their journeys.