We are often asked to spend time with client’s children to talk about how to go about saving and investing for the future. It can be a challenging exercise because investing can be quite complex, yet our goal is to make it simple to understand so that they walk out of the office with a basic understanding of what they should be doing. Here are a few of the discussion topics that we use to start the process.
Risk-Reward: We all understand the basic concept. The higher the risk, the higher the potential reward. You always have to remember the other side of that coin, the higher the risk the higher the potential loss. So let’s do our best to understand the risk.
Time matters: If you’re investing for your retirement you may not need these funds for 30, 40, or 50 years. Put the money away and don’t worry about it. If the money is to pay for a trip at the end of the year or a down payment on a house, keep it very safe. So know your time horizon.
Don’t put all your eggs in one basket: We all know this from a young age. Diversify your investments because no matter how great and idea may be it doesn’t always work out. Ask Warren Buffet how his IBM investment fared. Better to suffer a 2% loss than a 50% loss.
Life Happens: Despite our best efforts to foresee our needs life has a way of throwing us surprises. Someone hits your car, the air conditioner needs to be replaced, the roof leaks, a broken leg. As the Farmers Insurance ad says, “we know a thing or two because we’ve see a thing or two.” So assume something unexpected could happen.
Save early, save often: The sooner you start the process of putting money away the better prepared you’ll be for the future. It’s within your control.
–The Leisure Capital Management Team