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  • Nicholas Pihl

Where Should I Put My Money?

Creating an investment strategy that works for you requires 3 basic things. One, an understanding of when you'll need to access the money. Two, an understanding of how much growth you'll need to make your financial situation work. And three, your ability to ride out volatility in your portfolio. Putting these pieces together requires some thoughtful judgment and planning.


When you'll need the money: When I work with clients I help them put together a cash flow plan for the next 5 years. This includes their basic living expenses, and for self-employed people, their business's operating expenses. We also factor in major purchases, like buying real estate, paying for a wedding, buying a car, and making capital investments for growing the business. Everything is tailored specifically to their situation. In cases where the income or expenses are less predictable, we'll create a couple of scenarios so that we can say, "here's what it looks like if X and Y both happen in the same year, and here's what we're doing to prepare for that."


This is especially important for the self-employed people I work with. Many of them have substantial cash needs in the 2-5 year timeframe, and so carry a larger-than-average cash reserve. They might use that money to weather a downturn in the economy, or make advantageous purchases of real estate. In either case, it's wise not to have that money tied up in the equity of their real estate (because banks only lend you money when you don't need it), or socked away in retirement plans that haven't been specifically organized for 401k loans (your borrowing limit may shrink substantially in a market drawdown).


How much growth you'll need: We'll evaluate things like how much wealth you'll need to fund your goals, how much you have currently, and how long your investments have to grow before you'll start withdrawing money from them. A younger couple with few assets will need a lot of growth if they want to retire someday. Meanwhile, an older couple who just sold their business might theoretically be fine if they did nothing but spend down the cash they received from the sale, even with a 0% return.


How much volatility you can tolerate: There are two components to this. One is the ability of your overall financial situation to ride out recessions and bear markets. If your income is unpredictable and you haven't yet established a good cash reserve, your ability to take risk is fairly low. Secondly, you have to be able to sit out the ups and downs of the stock market without panicking out of your investment strategy. 30% drawdowns are a fact of life in the stock market. Even 50% drawdowns come around at least once every generation. If you lose sleep at the thought of seeing that kind of decline on your account statements, you likely should be in a lower-risk portfolio.


At Pihl Financial Planning, you'll be guided through a thoughtful discussion that incorporates all the aspects of your financial situation so that you get the best investment strategy for you.

If you'd like to get started now, feel free to call Nicholas at 503-730-5093 or schedule a free consultation at: https://calendly.com/pihl/20min


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