Where Is the Best Place to Invest Your Retirement Money (2023)

Stocks and bonds going down in 2022 might still be fresh in your mind and now we’ve seen multiple banks closed by regulators causing nervousness over cash savings. Is anything safe?

I want to help you sleep good at night so we are going to address how to invest based on when you need your money. How should you allocate between cash, bonds and stock? And why each of these are important to your retirement plan.

Where Is the Best Place to Invest Your Retirement Money (2023)

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Full transcript:


Anthony Saffer

Anthony Saffer 0:00
Stocks and bonds going down in 2022 might still be fresh in your mind. And now we’ve seen multiple banks closed by regulators causing anxiety over cash savings. Is anything safe? I want to help you sleep better at night. So we’re going to address how to invest based on when you need money, and how you should allocate between cash, bonds, and stocks, and why each of these is important to your overall retirement plan.

Hey, there, it’s Anthony at One Degree Advisors and we want to help you have confidence in your retirement.

So we’ve seen Silicon Valley Bank and Signature Bank closed by regulators. And now Credit Suisse needed UBS to step in and purchase the bank at a significant discount helped by a credit line from the Swiss government.

Many of you are used to the stock market going down, it’s part of the cycle. But when safer asset classes are uncertain, how do you allocate your money? When we advise clients during the 2008 crisis, many of these same questions arose, at least they were quite similar. So I don’t want to necessarily equate that to where we’re at today. But I do want to share how we helped our clients through that particular time.

And it really started with their financial plan. And so here’s what I mean by that. We helped our clients organize their goals according to their purpose and timeframe, or at least we helped reiterate that. So for example, if you needed money, a lump sum for a kitchen remodel in six months, you really don’t want that money in stocks, where you could lose 30%, or some large percentage, it’s just not worth the risk. And it’s really the same with your regular income needs.

So let’s talk about where cash bonds and stocks each fit into that financial plan. Cash is really for near-term needs, where you cannot afford to lose any principle, the number one priority of cash should be preservation of capital, you want to be able to access it quickly. And now that interest rates have gone up, you can earn a good interest rate out there, but you really want to go after that after capital preservation is assured.

So here’s a tip making sure that you’re under the FDIC limits. If you wait till the end of this video, we’re going to talk about a tool that you can use for making sure that you have FDIC coverage. You can also use money market funds or Treasury bills. They’re paying good yields to help meet that cash need.

How about bonds, so as we saw in 2022, bonds can decline in value. One way is if the bond issuer defaults. Default risk typically increases in a recession, and can be minimized by buying bonds from higher-quality issuers. So when buying a bond, the level of quality is essentially who’s more likely to pay you back at maturity. The recent broad decline in bonds, though, was not due to a lack of quality but rather was due to interest rate risk. So when interest rates increased, as they did, previously issued bonds that you may have owned decreased in value, because they’re simply not paying as much as those new higher-interest bonds.

And this was actually a major issue in Silicon Valley Banks collapse because they invested in these longer-term bonds that ultimately went down in value. But they needed to sell them to pay back depositors when they took out their money. Since there was a bank run, they needed that money. And essentially, they did not match their investments with their timeframe.

Alex and I are actually going to post a video in the near term that’s going to talk specifically about matching duration with your income needs. So if you’re not already subscribed to the channel, we hope that you will do that.

Since bonds carry a bit more risk than cash, but typically return more than cash over time, bonds should help meet those intermediate needs. Okay, stocks, we know the stock market will always fluctuate simply because when you own a stock, you own part of that company. So the risk is with the owners, for example, depositors are receiving their money back from Silicon Valley Bank, but stockholders will not be reimbursed.

The stock market has historically provided much better returns than cash and bonds, there’s also more risk that’s involved in there. The ride to get there, when you’re looking at the long-term return of stocks is more of a roller coaster, and it does take time to earn that higher return. Unfortunately, many people sell stocks when they’re down because they get scared to even through the significant downtrends, even though knowing that significant downturns are a part of that natural cycle. As you can see from this chart here, we just look at that cycle of emotion and how it can play on investors.

Stocks are really meant for that long-term growth to outpace your increased cost of living over time. So we can see from this chart, that extending that timeframe really helps to limit the range of returns, whereas in any one given year, you can make a lot in the stock market or you could also go down quite a bit.

So I hope that these tips as far as matching your investment allocation to your timeframe and when you need the money, we’ll help you sleep a little bit better at night. We certainly don’t know the future, but we want to make the best decisions that we can for today. And if you’d like a little bit more detail on what happened with Silicon Valley Bank, and steps to take with your cash at your bank, Alex recorded a video talking about bank failures, what retirees should know and what to do now. Included with that video is a great tool by the FDIC, which talks about how you can make sure that your bank accounts are insured up to the limits.

Once again this is Anthony Safra with One Degree advisors and if you’d like to learn more how we can help you with your retirement plan to gain confidence, go to our website at onedegreeadvisors.com/getstarted/.

Transcribed by https://otter.ai=

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