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Over
the past several years, the phrase
multi-tasking has gained popularity. And
you know just what this expression means
if you constantly juggle work and family
demands. But you might not realize that
you might have to use your skills at
managing different outcomes in another
area of your life: investing.
Specifically, you will
likely need to invest for both
short-term and long-term goals. And you
will have to do it at the same time.
Your first step toward
achieving this two-part investment
strategy is to identify your short- and
long-term financial goals. Your
short-term goals will change over time.
For example, when you first start out in
your working life, you may want to make
a down payment on a house. In the middle
of your career, you may want to take
your whole family on a round-the-world
trip. And then, as you near retirement,
you might decide to purchase a vacation
home.
Your long-term goals, by
definition, will likely remain fairly
fixed. So, when you first have children,
you might decide that you will save and
invest for 18 years to help pay for
college. And your biggest long-term goal
will be to build resources for a
comfortable retirement.
Can you work to achieve both
short- and long-term goals - without
hurting your progress toward one or
another? Yes, but you will need to
follow different investment strategies
for different goals.
Suppose you are beginning
your career. You want to save for a down
payment on your home, but you also want
to start a retirement savings plan. What
should you do?
For your down payment, you
need to rely on investments that you can
be fairly certain will provide you with
the money you will need in a relatively
short period of time, perhaps three to
five years. Consequently, you may want
to consider certificates of deposit
(CDs) or investment-grade bonds that
mature at exactly the time you want to
make your down payment. You will receive
regular interest payments, but even more
importantly, you will get your principal
back just when you need it.
During these same years, you
may be contributing to your 401(k) at
work, and, if you can afford it, to an
IRA as well. And, since you are
investing for retirement, which is
likely many decades away, you need to
take quite a different approach to the
one you used when saving for a down
payment. In short, you can afford to be
a much more aggressive investor. That
means you should include a mix of
high-quality, growth-oriented stocks in
your 401(k) or IRA. Will these stocks
fluctuate in value over the years?
Certainly. But the longer you hold these
stocks, the greater the likelihood that
you will overcome the short-term down
periods and potentially achieve
significant gains.
So, there you have it: One
point in your life, two different goals
and two different investment strategies.
You will find that you may need to
follow this dual-track approach many
times over the years. To coordinate your
different investment approaches, you may
want to work with an investment
professional who can help you draw up a
comprehensive financial plan for your
financial future.
(Louis Mullinger can be
reached at the Edwards Jones office on
Wake Union Church Road in Wake Forest.) |
