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Choosing an Investment Strategy That Works For You

February 12, 2020

Making enough money to live comfortably, take a few vacations a year, and own a second home is an admirable goal. But at First Western Financial, we know that your wealth is about more than just the numbers in your bank account.

While many financial advisors see wealth as a goal in and of itself, we see your wealth as a means to an end. It’s about the life you’re able to create for yourself, your loved ones, and the children and grandchildren you leave behind. It’s about the causes you care about and want to support. And it’s about the experiences that shape who you are.

Our 12-point ConnectView system incorporates financial wealth with spiritual, relational, and experiential wealth to create a complete plan for your wealth, during your lifetime and beyond.

In order to grow your wealth, you’ll need an investing strategy. You probably already have an array of investments, like brokerage accounts and real estate holdings. But there’s a good chance you haven’t taken full stock of your investments — and whether they’re taking your money in the right direction — in some time.

Before you meet with your financial advisor to make a plan for your money, here’s a brief rundown on a few of the most popular investment options for high-net-worth individuals.

Stocks and Bonds

Generally speaking, stocks are far more volatile than bonds, but they can offer returns of 9% or more, which is hard to find anywhere else. In general, you should expect the stock market to rise in two-thirds of years and fall in the other third. That means your portfolio will almost certainly gain value over a long enough time scale, but you should be prepared for single-year losses of up to 60 percent.

Bonds, at the other end of the spectrum, are a very predictable way to invest your money. Each bond has a certain par value, then pays interest to consumers in the form of a coupon. Unless the company that issued the bond defaults (which is rare), you’re guaranteed a predictable return. In the long term, stocks return around 10 percent, while bonds return between five and six percent.

The longer you can leave your money alone, the more aggressive you can be. If you’re 40, and you plan to work for another 25 years, you can invest most of your money in stocks because the good years will iron out the bad years over time. If you’re planning on selling your positions in 5–10 years, it might not be worth the risk of one bad year undoing all your gains, so bonds are a safer bet.

Stocks and bonds can also be an excellent way to invest with purpose. We know that your wealth isn’t just about the number at the bottom of your balance sheet — there are causes and companies that you believe in and want to support. Investing in promising startups or companies whose values align with yours is a great way to use your wealth for the greater good.

Index Funds

If juggling stocks sounds too complicated, an index fund might be the perfect hands-off way to invest your money. An index fund is simply a fund that buys stock in every company listed on a certain index — for example, the S&P500. You then buy shares of that fund, which rise and fall with the value of the market. You’re basically buying stock in the entire market at once.

Warren Buffett has long been a proponent of index funds, given how difficult it is to beat the market by buying individual stocks. In fact, the stock pickers at Berkshire Hathaway, Buffett’s 500-billion-dollar company, haven’t been able to beat the market themselves. “Overall, they are a tiny bit behind the S&P, each, by almost the same margin,” Buffett said. “I think [index funds are] the thing that makes the most sense practically all of the time.”

Real Estate

Real estate is a popular long-term investment for a few reasons. First, real estate tends to rise at a pretty predictable rate around four percent, barring massive events like the 2008 mortgage crisis. Second, real estate is an investment you can actually use in the meantime. If you put $5 million in stocks, it just sits there (hopefully generating dividends) until you sell it. If you spend $5 million on a house, you can live in that house while its value increases year to year.

The downside is that real estate has to be managed. Houses need to be maintained and taxes have to be paid. Unlike an index fund investment, you can’t just buy a house somewhere across the country and forget about it. That’s why The Motley Fool reports that the average high-net-worth investor only allocates about six percent of their assets to real estate.

Investing in Other People’s Business

Getting into venture capital or becoming an angel investor is a lot like fishing — you’ll remember the big ones you landed, not the endless hours spent waiting for a nibble. If there’s a startup or creative project that you truly believe in then, by all means, help get it off the ground. But don’t get into the business of angel investing thinking you’re going to strike it rich.

Instead, think of angel investing like gambling, in that you’re prepared to lose every penny you put in for the chance to get lucky. (The SEC requires that angel investors have a net worth of at least $1 million or an income of $200,000 per year to shoulder the loss of their investment.)

And just as with stocks, don’t put all your eggs in one basket — or one industry. Diversify your investments across a number of different ventures, and don’t spend more than 10 percent of your investable assets.

Talk to the Professionals

This article has barely scratched the surface of all your investment options. There are money market deposit accounts, CDs, taxable bonds, municipal bonds, treasury bonds, commodities, gold, and a dozen other more obscure options to grow your money and meet your goals, and no one person can keep track of them all.

That’s where First Western Trust can help. We employ experts in every aspect of money management, taking into consideration your values, goals, assets, and relationships to build a financial plan that’s truly holistic and tailored to you. Want to learn more about our unique approach to wealth management? Contact us today.

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