When to be more conservative, when to be more aggressive, and how to do so in a more balanced spread out way.

• Paying yourself first and separating out your goals is all well and good but if you're using inappropriate types of investments for certain goals, they may take much longer to achieve or even worse, perhaps you may never achieve them at all. (01:41)
• Sure, we don't want to be reckless in the ocean and sink to the bottom of the sea but at the end of the day, we also have to get to where we're going before we run out of food and supplies. (02:50)
• Using a bank or cash type savings vehicles for goals that are for 5, 10, 20, 30 years out is almost certainly not appropriate. (03:40)

Quote for the episode: "It's so important to be using the right bucket for the right goal and the right risk tolerance for the right timeline." (06:26)

Securities offered through TFS Securities, Inc., and Advisory Services through TFS Advisory Services, an SEC Registered Investment Advisor Member FINRA/SIPC. TFS Securities, Inc., is located at 437 Newman Springs Road, Lincroft, NJ 07738 (732) 758-9300.

Welcome to the EnjoyMore30s Family Finance

podcast. The only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

that tend to weigh on us, stress us out, and distract our focus

from simply enjoying life.

Hello, and welcome once again to the EnjoyMore30s

Family Finance podcast. Every week I'm here talking to you

about money because I want you to be able to take steps

forward, gain some kind of confidence and therefore remove

that financial anxiety so you can really just focus on making

your life and the life of your family more enjoyable. This

series is all about the new year and the new you. So Setting Your

Compass for the New Year is a great title right? As always, if

you do like what you're hearing, please I ask always to

subscribe, follow us on Apple podcasts, wherever you listen.

When you click those stars, when you leave those reviews, it

really helps us reach other people out there just like you.

So far this season, we've covered setting your compass

with your spouse, so joint goal setting, then we discussed the

importance of actually paying yourself first, giving some of

that money that you worked really hard for every day to

yourself to reach those goals that you've set. And then we

covered bucketing your goals. So setting separate accounts for

each goal you you have because we want you to be able to easily

track easily achieve them. And finally, last week, we cover one

of my favorite topics money blocking, which is setting funds

aside ahead of time to make sure you do more of those daily

things massages, Starbucks, going out to eat, that make you

happy. So if you've missed any of those episodes yet,

definitely check them out soon.

Today's episode is titled Yes, There Can Be TOO Conservative!,

where we're going to cover how paying yourself first and

separating out your goals is you know, all well and good but if

you're using inappropriate types of investments for certain

goals, they may take much longer to achieve or even worse,

perhaps you may never achieve them at all. The goal for

today's episode is to better understand when to be more

conservative, and when to be more aggressive, and how to do

so in a more balanced spread out kind of a way.

Now the word investments isn't exactly soothing to most people.

If you hook somebody up to an anxiety machine, and you said

the word investments, I'm guessing that there'd be some

kind of thing that registered on that anxiety scale. It's not

exactly a word that's used in a lot of bedtime stories. It makes

people a little uncomfortable, even scared to some degree. I

mean, anything that's associated with a potential to lose money,

and not fully understand perhaps even why it happened, it's

unsettling. That's completely understandable. So when we built

this ship that we've been trying to build this whole season, to

sail out towards our goals, there can be more of a better

safe than sorry kind of mentality that develops. Sure,

we don't want to be reckless in the ocean and sink to the bottom

of the sea but at the end of the day, we also have to get to

where we're going before we run out of food and supplies. So

there's a balance that we have to hit. And that's why the

previous bucketing episode is so important, because you are

arranging your accounts to where you can invest each more

appropriately for their individual time horizons. If

you're saving for retirement, and the car you're buying next

year, and the second house you want five years from now and the

daughter's wedding, and you're using one account to do all of

that it can't possibly be appropriately invested for all

Money that you need in the next one to three years, yes, that

should likely be invested in a bank type of account. Almost no

growth, but no loss of what they call principle, which is a fancy

way of saying the money you put in yourself already. Outside of

that, though, using a bank or cash type savings vehicles for

goals that are for 5, 10, 20, 30 years out is almost certainly

not appropriate. This is where we've run into people being too

conservative. We have had multiple clients that have come

to us when they're about to retire and they say, you know,

"why do I have so much less saved than my co workers? We

started at the same time, we put in the same amount and they have

just 2, 3, 4 times more than I do". And so we look at their

statement. And what we find is that it's all invested in what

they call a stable value fund. That sounds great, right? It's

stable, it's got value, that's a great fit for where I want to

put my money. But it's really just a fancy way of saying

sitting in cash earning almost nothing. They use the completely

wrong vehicle for trying to accumulate assets for retirement

over that last 30 year period. So let's say to illustrate this

point, we look at two people that are saving $500 a month

right now as an example. One person is invested say

moderately, and let's say that moderate comes out to a 7%

return and another person is invested basically in a cash

type account, and they receive just 1% long term. After five

years, it's a little bit of a difference $5,000. $35,000

accumulated verse 30. After 10 years, it's now over $20,000

difference. After 20 years, it's now over $120,000 difference. So

you see that big jump. Finally, at 30 years, it goes to over a

$400,000 difference. $610,000 vs $210,000. Stable value vs being

invested appropriately, I would say, for the last 30 years for

that long term retirement goal. So too conservative can often

mean not hitting your goals or certainly hitting them a lot

more slowly than you otherwise should have.

Now there's a big difference between 7% and 1%, right? So

let's look at this another way. Now instead of 7% vs 1%, let's

look at 7% vs 9%. So much less of a spread. So potentially what

a moderate account versus let's say a very aggressive account

may have as a long term difference. Again, after five

years, not too much of a difference $37,000 vs $35,000.

After 10 years, up to a $10,000 difference. After 20 years up to

a $70,000 difference. Now, again, you saw that jump not as

much, but still a little bit of a jump. And then lastly, after

30 years, it goes all the way up though now to a $300,000

difference. $915,000 vs $610,000, just like before. So

even a few percentage points, long term can add up

significantly. And that's why it's so important to be using

the right bucket for the right goal. And the right risk

tolerance for the right timeline. Too conservative can

also then mean using say moderate for a 30 year time

horizon, assuming that they can emotionally handle the

aggressive portfolio that would have been more appropriate, or

at least working with someone so they could get educated to be

comfortable to that point.

The other point to take away here is why it's important to

use that bank account for your short term goals. You can see

after five years, there's not too much of a difference for any

of these scenarios, or either of those scenarios, I should say

that we just went through. So again, if it's just a two year

or three year kind of a thing, it's probably better to have

that money in cash, because there's not that much of a

difference in the interest overall and if the market

happens to drop, you, you don't want to lose, say 20% of what

you might have, depending on how you're invested, and not have

that money for the car, have that money for the wedding, or

have that money for the house, if they're occurring in the

short term.

The thing overall with investments is that those that

are spread out are a diversified, meaning again,

that's a fancy way to say that they're more balanced, because

they have a lot of different pieces to them. So let's say

some smaller companies, some larger companies, maybe some US

companies, some foreign companies and bonds, which may

initially sound intimidating, but can actually easily be

obtained through what they call an allocation fund that I've

discussed before. So pretty much every major investment company

out there that you know, that you see has these allocation

funds now. So if you are using a diversified strategy, maybe

through an allocation fund, or if you're working with an

advisor, they might have their own diversified program, then

the thing with investments is that time is the most important

factor. So you don't really you don't need to know any of that

other small company, large company, you don't need to know

all those things. You just need to remember, hey, I want to be

spread out, I don't want all my eggs in one basket with how I'm

invested. And hey, if I'm not using an advisor, I can use an

allocation fund to help spread that money out. Or I can find an

advisor that actually does that and they could do it for me.

So let's get back to the last point in there as well, which is

time and how that's the most important factor. If we look at

the S&P 500, which you probably heard that said before the S&P

500 did this or did that. This is essentially just a blend of

the 500 largest US companies. So not exactly what I would say is

overly diversified but what you hear the grumpy guy on TV

referring to as 'the market'. You can quickly see the

importance of time when it comes to investments. Over the last 91

years and the most recent data I could find ended 2018, so almost

the last 91 years as of today, but you'll still get the same

point, there was a 73% chance that any one year in there for

the last 91 years ending 2018 would be positive. So if you go

out to three years, you get to an 83 chance 83% chance, excuse

me of being positive. If you go out to five years, it goes all

the way up to 87%. 10 years is all the way up to 94%. And

again, this is just for the S&P 500 which is not necessarily

certainly in my opinion, the most diversified way you can be

building out a portfolio.

So there are a couple main takeaways and we covered a lot

today. So let's circle back to the goal of this episode. The

goal is to better understand when to be more conservative,

when to be more aggressive, and how to do so in a more balanced

spread out way. That's it. So if you look at your different

goals, you can spread them out into different accounts, those

different buckets you've hopefully set up, and see when

1 year, 5 years, 25 years, and then

structure how conservative or aggressive again in a

diversified balanced way, either through maybe an allocation

fund, or speaking directly with an advisor to help you. The

investments should be in each one of those accounts.

So thanks for tuning in today. As always and join us for next

week's episode called Insure for Catastrophe, Not Inconvenience!

for sure on this one, where we're going to cover the

mentality that I would recommend when looking at which pieces of

this trip we're designing are the most important to insure.

Overall if you're able to implement what we cover today,

then that is fantastic. As always, you have less to worry

about them before get focus more on enjoying life. If you are

wanting help with these things or you have questions, you need

things to be clarified, just check out the ASK JOE section on

the show's website, EnjoyMore30s.com. That's

EnjoyMore30s.com. Until next week. Thanks for joining me

today and I look forward to connecting with you again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

only. They do not constitute accounting, legal, tax, or other

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer, or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

of TFS Securities, Inc., and TFS Advisory Services an SEC

Registered Investment Advisor Member FINRA/SIPC.