Throughout my career, I have talked to a countless number of people who are looking for the “ultimate” investment. Most people want to find a place where they can stash their money and achieve all three of the main objectives of investing: growth, liquidity, and safety. In a perfect world, we would be able to invest our money to achieve a nice return (growth), be able to access or spend our money at any point in time without penalty (liquidity), and not have to worry about ever losing any money due to stock market losses (safety).
Here’s the problem: that golden investment simply doesn’t exist! Unfortunately, you can only pick two of the three investment objectives when choosing a place to invest your money. You can’t have all three. If you want growth and liquidity, you’ll have to sacrifice safety and take a little bit of risk. If you want safety and growth, you won’t be able to find something that is very liquid. And finally, if you want liquidity and safety, your rate of return will usually be very minimal.
Let me share some examples of what I mean. A growth and liquidity investment would be something you invest in the stock market within a brokerage account. This could be mutual funds or stocks. They have high growth potential and you can sell them and access your money at any time, but you will never ever be able to call your money safe.
In a safety and growth vehicle, such as an indexed CD or annuity, you can achieve a better rate of return than most traditional protected vehicles earn. Your money will also be protected from losses. However, to get a better rate of return on safe money, you have to sacrifice liquidity.
Safety and liquidity is easy to achieve. Almost everyone in the United States already has accounts set up this way. You’re checking and savings accounts follow this model. A money market does the same. To keep your money fully liquid, and protected, you have to sacrifice return. You never see bank accounts or money markets with attractive interest rates!
So, in retirement, what option do you choose? Are you supposed to go with one over another? Is a combination of two or even all three strategies the best option? Rather than thinking about it that way, it is better to assess your goals and objectives in retirement, and then choose. In my experience, most retired individuals need the safety on their money so that they never run out of money. A good financial plan will allow you to put your money in different categories with different objectives.
Ultimately, a combination of the above examples usually fits most situations. The percentage of how much of your money you allocate to one or another depends on what you want your money to do for you!
William "Bill" Smith, RFC
CEO and Founder
W.A. Smith Financial Group
For further educational information or to attend one of Bill's workshops, please call toll-free, 1-866-417-4156. You may also email us at Jarrett@WASmithFinancial.com
Investment advisory services are offered through Great Lakes Retirement, Inc., an Ohio registered investment advisor. Please consult with a qualified financial professional before acting on any investment advice given within this blog. Past results are not indication of future gains.