Today, Tomorrow and Never:
I recently had a meeting with a prospective client. After brief introductions, I asked the gentleman "what is the money for? What are you trying to achieve?" Befuddled, he replied, "I just want to make money." Not surprised, as that is the number one answer I hear, I asked, "Is it today, tomorrow or never money?". Of course we all want to make money but what for? The question opened up a whole discussion of his wants and needs. I thought I would share this as all of us need to ask the question of ourselves. It will keep you out of trouble. Here's an explanation to help you navigate the questions.
Today Money: This is money you may need today. You may have it set aside for an emergency, loss of job, unexpected event such as an AC unit going out or to help out a family member. Today money still needs to work though. I meet many people that have cash in a lock box that is sitting there earning nothing. With inflation currently north of six percent, the purchasing power and thus, value of that dollar is going down. On the flip side, I've met people that have their today money in a single equity. Anything can happen in the market. What if you needed those funds today but your stock lost half of its value yesterday? To keep pace with inflation but give us liquidity, we use investments that are short term AND safe for these funds.
Tomorrow Money: This is money that we don't need today but will need at some specific time. College education, retirement, a large purchase such as a home or car are a few examples. Because we have time, it is prudent to take some risk with this money. The amount of risk is specific to the amount of time, the individuals appetite for risk and relative liquidity of the funds. Tax advantages can be taken into consideration as well.
Never money can be broken into two categories: Speculative money and money you will leave to your heirs.
Speculative money: It's not that you will never need this money... you might. But it is money you can live without. If 100% of it was gone, it would not change your lifestyle. Thus, you can speculate and take risk with these funds with the hopes that you make a lot of money. You can choose individual investments yourself or hire us to do it for you. Regardless, these funds are invested with a longer time horizon and in investments that tend to be more volatile requiring emotional discipline in both good and bad times.
Money you will leave to your heirs: Like speculative money, this money is set aside and you do not use it for current or future income. There are specific types of investments best suited for this type of money.
Each of these categories have their pro's and con's, however, if you segment correctly, you can achieve your goals and objectives. In my opinion, this is one of the most important questions that I ask clients. It gives me clear direction and manages the client's expectations for returns, volatility and liquidity.
If you would like to come in to discuss this question and engage us for recommendations, please give Kim or Charity a call to set an appointment. The initial meeting is complimentary. Should you wish to hire us to take care of this for you, we would discuss costs at the initial meeting or you can learn how we earn our keep here: https://www.daviswealthservices.com/faq
Volatility Update:
On Monday, August 5th, we saw an extreme drop in the markets and many individual equities saw double digit declines. Since, we have experienced a healthy rebound. There has been no earth moving news for this to happen which makes me caution the true strength of the rally. Maybe it's just a bounce or maybe the it was an anomaly. As always, you can make a case either way. I tend to err on the side of caution so with the investments we sold in July, we are sitting in cash (money market) that is still earning north of five percent while we wait and monitor the election, geopolitical events and interest rates. This is NOT a recommendation. The transactions that I make for clients in managed advisory accounts are on a client by client basis and go back to the beginning of this blog... "what is the money for?" But generally speaking, I am taking a conservative approach to current conditions.
If you would like to come in to discuss your wants, needs and whether the current allocation of your investment portfolio matches, give us a call to set an appointment. We can be reached M-F 8:30 am - 4:30 PM. 731-285-0097.
As we close out the summer and the kids go back to school, we wish you cooler weather, a bountiful harvest, a good dove hunt and a winning football season. GO VOLS!
Until next time, Cheers!
