Plant Growing In Savings Coins –

“What’s the best investment option for my money?”

Investment advisors are frequently asked this question, and most agree it’s comparable to being asked, “How big of a house should I build?” There’s no simple answer and no one-size-fits all solution.

Experts say to begin with some soul-searching.

“The ‘best option’ depends on a few variables, such as when the investor will need to spend the money, how much risk they can afford to take – or are willing to take – and their current financial situation,” said Robert M. Florian, principal of Williamsville-based Florian Financial Group.

“Before specific investment options are considered, a solid investment strategy should be in place.”

The best strategy, says Florian, takes into consideration realistic market expectations, your investing temperament and knowing what you want from your investments. Financial advisors typically manage client assets using a variety of investment styles that produce results over the long term. However, there are instances when short-term (five or fewer years) investing is desired.

“Say you’re buying a house within the next few years and want to put away money for the down payment. That would be considered a short-term investment, so your priorities are different than if you were investing for the long haul,” said Larry Buck, chairman of the Buffalo office of Winthrop Financial, Inc. “You want an option with minimal risk, one that will allow you to access your principal, at full value, when you need it. Short-term bonds or Certificates of Deposit, which offer liquidity and are less vulnerable to rising interest rates, would be good choices.”

Long-term investing, however, affords more options. Age is definitely a factor with any investment strategy.

“Since younger investors have a longer time horizon before they begin withdrawals, they can be more aggressive in their long-term investment strategy because they have time to recoup losses that come with market volatility,” said Therese M. Vita, wealth advisor and senior vice president at Key Private Bank. “The older you get, the more important it becomes to manage downside risk because you’re going to be taking withdrawals. A good rule of thumb is to be much more conservative in your investing beginning around five years before you retire.”

Buck agrees, but also warns against being too conservative. “You have to allow for inflation. If you put all your money in fixed-income securities at age 60, will you have enough to live on at 70 or 80?” While Social Security is a retirement plan that is adjusted for inflation, most others are not.

“If your timeframe is ten years or more, common stocks have proven to be a good place to invest,” said Buck. “Even with high valuations, in the long run you’ll still get a good return.”

For people with a higher risk tolerance, Vita suggests a well-diversified stock portfolio with allocations to small, midsized and large European and U.S. companies. While some people like the idea of investing in real estate, it is not a liquid asset.

“Our research sources favor a heavier allocation to international and emerging market stocks on the equity side,” says Florian. “European stocks look cheap compared to U.S. stocks. Europe has gone through a prolonged earnings recession and has underperformed U.S. stocks by a wide margin in the past five years. European companies cut expenses during this period and are in better shape than before. The trend of underperformance to U.S. stocks is likely to reverse over time, making this a good option for the long term.”

Is there a difference between a smart investment and a safe investment?

There can be, say the experts. “Nobody makes an investment they don’t think is smart,” said Buck. “But it might not be safe. The best investment is smart and safe. Investors need to do their homework and be prudent with their money.”

“The same investment can be smart and safe for one investor, but not so for another,” points out Florian. “It depends on your goals and your timing. A money market fund yielding absolutely nothing is a safe, smart investment for the short-term investor, but not for the long-term investor.”

What would be considered a bad investment right now?

“Annuities can be an inadvisable investment choice because of their high commissions and associated internal fees,” said Vita. “You want to stay away from investments that decline as interest rates go up – especially now, with the perception that the Fed will be raising rates,” says Buck. “So, no long-term bonds or preferred stocks.”

Buck says the biggest mistake most people make is that they are not patient. They don’t see the long-term returns. They get too caught up listening to financial news networks.

“For a good investment to work out, it takes time. There are different approaches to investing, there’s no one method that works best, and nobody bats one thousand,” said Buck. “Listen to your financial advisor, and have patience and confidence that things will turn out well.”

 

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