Page 123 - June_2023

Remember, the most successful investors find a way to get comfortable during uncomfortable times.
FINANCIAL PLANNING
where they need a large sum of funds, but all their money is locked up in real estate, then they will quickly discover that they are in a predicament. Other things to consider are dealing with a renter and keeping up with maintenance costs.
STOCKS
Lastly, I want to look at stocks. The long- term average return for the stock market is roughly 10%. What I find attractive about stocks is their liquidity. If someone needs money, they can sell some of their holdings and have
the money back in their bank account in a few days. When investing in the stock market, and I’m sure most people have experienced this
with their retirement plan, it doesn’t go up
10% every year. Some years it could be down 20%, which is still a fresh wound from 2022. Whereas other years it could be up 30%. Stocks tend to be volatile and that’s something you will have to grow comfortable with as an investor.
I just spoke with a gentleman who told me he is getting older and he wants to be in very safe investments, which is totally fine. I talked to him about a money market fund and told him
about some less-aggressive investment options. The point here is that stocks may not be for everyone, but for younger individuals who are in growth mode, stocks can be a great option.
RUNNING COMPARISONS
I whipped out my handy financial calculator and ran some numbers based on the average returns that I mentioned. If someone invested $100,000 in stocks, bonds, real estate, or left that money in a savings account over a 20-year period, the expected future value will be as follows:
Initial Investment
Return
# of years
Future Value
Stocks
$100,000
10%
20
$732,807
Bonds
$100,000
5%
20
$271,264
Real Estate
$100,000
4.20%
20
$231,297
Savings Account
$100,000
3.30%
20
$193,304
As shown, the savings account isn’t a very attractive long-term investment. That is the risk of being too conservative. There are always things to be concerned about in all walks of life, not just investing. I would encourage people to at least explore some options with the other three investments. Based on the provided example, the investment in stocks grew to $732,807. That isn’t a massive sum
of money, but someone can certainly make things work with that in retirement. As far as
the investment in real estate goes, $100,000 clearly won’t buy a home with the current environment. This chart is simply to show the averages and what $100,000 could grow to.
By investing in bonds, the overall investment more than doubled. Someone who is nearing retirement could consider bonds for at least a portion of their overall portfolio. Once again, an investment in bonds for younger individuals may not be the most attractive strategy to take. The meaning behind this is younger people
have a much longer time horizon and when
the market drops, they have plenty of time
to wait for the recovery. The other factor is compounding interest. That 10% average starts to look a lot better each year when the investor sticks with it for the next 10-20 years. The risk of being too conservative won’t become clear until retirement is nearing, and the cost of goods has grown more than cash. Remember, the most successful investors find a way to get comfortable during uncomfortable times.
SPEEDHORSE June 2023 121