Jun 25 • 3 min read
When do you need the money?
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Forget the headlines and what the market did yesterday for a moment. Instead, ask yourself one deceptively simple question: "When do I actually need this money?" The answer shapes nearly every smart investment decision you'll ever make. Because money you'll spend next year and money you won't touch for 20 years have completely different jobs to do. In today's email:
And as always, I’ll wrap up with a few of my favorite retirement and investing articles from the past week. *** Before we dive in, did you catch this week's podcast? 👇 Different Money, Different JobsImagine you had to earn the highest return possible over the next year. You might buy a hot stock, crypto, or an option on something wildly volatile. You could hit the jackpot, but you could also watch it go to zero. Now flip it around. Imagine you simply had to protect that money over the next year, with no losses allowed. You'd likely reach for a savings account, CDs, Treasuries, or high-quality short-term bonds instead. The only thing that changed was the time horizon, and that's the whole idea behind how a portfolio should be built: Match the right investment to the right job. Money you’ll need soon should be protected. Money you won’t touch for years has more room to take risk and pursue growth. As Peter Lynch said: "Volatility is the price you pay for performance." What History Rewards (If You Give It Time)Over long stretches of time, history has rewarded investors who owned a diversified mix of stocks. And the longer the time horizon, the stronger the evidence becomes. Consider how often U.S. stocks have finished in positive territory since 1926:
In other words, the thing that makes stocks feel terrifying over a single year (unpredictability), fades the longer you hold them. Time doesn't erase risk. But for money with a long(er) runway, it has historically been one of the most powerful tools we have. Don't Reach for YieldHere's where investors often get into trouble. When money is set aside for the short term, the temptation is to make it work a little harder — to squeeze out some extra yield while you wait. It rarely ends well. Warren Buffett once endorsed a line from writer Ray DeVoe that has stuck with me ever since: "More money has been lost reaching for yield than at the point of a gun." For money you'll need soon, the goal is not to maximize every last basis point of return. It's to protect your principal so it's there when you need it. And notice the goal here: Not the best possible outcome, but the best outcome if things go wrong. The right choice is the one that can still get you where you need to go, even when markets, life, or timing don’t cooperate. Your Retirement "War Chest"If you’re retired or close to it, this is the foundation of a sound income plan. The money you’ll need over the next 2–3 years has one job: stability. That belongs in safe, boring places like money markets, short-term bonds, or CDs. The rest of your nest egg has a different job: funding the next 30+ years of retirement. That money needs to accept some risk and stay invested so it has the opportunity to grow. Why? #1 - Inflation. The money you won’t touch for years needs the opportunity to grow so your income can keep pace with rising costs. #2 - Forced selling. Your war chest helps you avoid selling stocks in a downturn. With the next few years of spending set aside, you can ride out a bear market instead of being forced to act. Done well, this structure helps support near-term expenses while preserving the long-term growth needed to fund retirement. It can also help you sleep better at night 😊 Bottom LineNo investment can guarantee success. But by matching each dollar to its time horizon, you tilt the odds in your favor. The headlines will keep coming, but a portfolio built around your goals and your time horizon simply doesn't need to react to them. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |