Top Short-Term Investments

Is there ever a time when a more short term approach might be beneficial for an investor? You’ll probably be surprised to hear me say this, but yes, okay. But it’s only when you have short term goals. So if you have a short term goal, maybe you’re saving to buy a house or go to college or something like that.

And that time frame is getting closer and closer. You can invest now. Investing doesn’t always mean that you invest in companies or equities are market type investments.

It could mean that you invest in a CD. You know, if you know that if you have a chunk of money, and you know that you’re going to buy a house in a year, well, you don’t want to invest that in something that has a long term time horizon, because when that year comes up, you never know what’s going to happen in the short term. You don’t know if there’s a black swan event like, you know, Covid, for example.

Nobody really saw that coming. You know, it caused the markets to react in a very negative way. Now, the markets did recover, but if you were, you know, let’s say that it was the summer of 2020, and you had planned on buying a house that summer, well, and you had invested that money in market type investments or equity type investments, well, your plans may have been derailed because rather than growing that money, you may have been forced to sell your investments and take a loss at the time.

So you really want to match your goals to your time horizon. And Shana, speaking of that time horizon, why is it for investors that the goal is eight to ten to twelve years and not just like four or five years? Why is it more that long term? 810, twelve years. What are your thoughts on that? Well, you know, statistically speaking, the odds of losing money decrease significantly as your investment time horizon increases.

So if you’re looking at making money in any one-year period, you have about a 75% chance. Based on historical returns, you have about a 75% chance of actually making money. That means that there’s a 25% chance that you can, that your investment will be lower a year later than when you started.

Now, if you hold for a five-year period, the odds drop to around a 16% chance of loss. And then if you, if you increase that holding period to ten years, you only have about a 10% chance of being lower than, than where you started. Now, that’s if you have 100% equity type portfolio, which we don’t really recommend for almost any investor.

We do recommend diversified portfolios. And you’ll see that when you’re, when you become a partner, and you look at our asset allocation models. So, you know, unless you’re really young, you’re probably not going to be all invested in equity.

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Changing your plan may require you to select new sectors for certain stocks

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