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When will you need this money?
A critical consideration for deciding upon an investment strategy is the “time horizon” for each goal. If you are planning to buy a home or retire in the next few years, you should have a very different investment strategy from someone planning to buy a vacation home in 10 years or retire in 25 years. We do not recommend investing short-term funds in the stock market. This is because while the stock markets have historically offered higher returns than cash or bonds, that is a long-term observation. Over short periods of a year or even several years, the stock market’s returns can be deeply negative.
It is important to note the difference between needing some of the money and all of the money. Someone planning to retire in a few years at age 65 will (hopefully) remain retired and spend their money for another 30 years. That person does not need to spend every dollar on the first day of retirement. With improving health care and longer lifespans, most people will need the higher returns of the stock market to keep up with inflation throughout retirement. So while this near-retired person’s funds would likely be invested more conservatively than a 25 year-old’s, some portion will still likely need to be in stocks.
