Mary Fox Luquette | Lafayette Daily Advertiser Saving for retirement, budgeting for our family’s needs and wants, or saving for our own special purposes happens over time. And each person’s investing plan is different from everybody else’s. Trying to accomplish a one-size-fits-all investing plan could cause loss of potential purchasing power and may force a delay in retirement. A person’s unique risk tolerance, a preference for growth versus stability, or a desire to meet long-term goals means that each financial plan must consider not just the results needed to meet those goals, but also the length of time required to achieve them and the effect of any potential for loss. When you are young and just starting your business career, which typically happens in your 20’s, you will find that time is on your side. You can manage risk because you have many, many years to recover from any losses. You can reach for growth-oriented stock or mutual funds that can compound high returns on investments year after year. Such risk tolerance allows a young investor to set aside as much as 70-80% of the investment portfolio in quality stocks along with enough cash to be available for emergencies. As we reach mid-life around our 40’s, our risk tolerance changes as we are beginning to change our outlook for the future. At this stage, stocks should still be a sizable part of our portfolio, but they should also be accompanied by real estate or commodities or tangible assets. To temper the potential for losses in the market, bonds and cash should also play a more strategic role in your portfolio. Here the mix will start looking more like a 50-50 split between growth investments and those that are dedicated to stability. As we near retirement, our investing strategy will change significantly once again since losses cannot be overcome by long-term investing. At this point we need to look to fixed income accounts and funds that protect the principal while still allowing the portfolio to seize upon any growth potential. At this point 70-80% of the contribution could be invested in money market accounts, bonds, or other safe investments with a portion going to blue-chip stocks and a smaller portion going to other growth stocks. If you are concerned about making mistakes with your financial planning, there are mutual funds that can remove some of that hesitancy. These funds are labeled “principal preservation” funds or “growth and income” funds. The fund will list how much of its investment dollars are directed toward money market accounts or fixed income bonds versus the amount of investment dollar is contributed to growth stocks. Based on your risk tolerance, you can choose the best funds that will achieve your ultimate goal. There is another factor that must be considered as you go through life’s stages. Inflation and risk are all a part of any growth strategy. To hedge against inflation, some risk must be taken but only to the extent that you are comfortable. When dollars become tight, the main focus should be meeting the current needs of your family and protecting whatever money you have so that you can make ends meet. And along the way, if in doubt, do not hesitate to contact a financial planner. He or she will work with you to develop the best financial plan possible. Mary Fox Luquette, MBA, CLU, ChFC is a finance instructor in the B I Moody III College of Business at the University of Louisiana at Lafayette. Source link Post Views: 66 Post navigation These Dividend Stocks Can Double Your Money in Under 6 Years Kevin O’Leary explains how you can live off $500K and ‘do nothing else to make money’ — but is it realistic?