RRD - Investing for Life Lesson

Investing for Life

We learned in the first lesson of this module that saving and investing are not the same thing, but each has a place in our overall life investment plan. Savings must come first as they provide us with that cushion, that "something to fall back on" when an emergency occurs, as well as providing a liquid, easy to turn into cash, source of money that we sometimes need. But investing is important because it is the place where our money truly "works" and grows for us.

Investment planning is not a static thing, once done and over. It changes as our lives and circumstances change. Most of us see many things when we look to our future: college, career, family, owning a home, and even retirement. Whatever we see, we are not the only ones in the picture, others will depend on us at some point. Let's take a look at what we might expect in the future.

In addition to where you are in your life cycle, as we mentioned earlier, your choice of investment is dependent on your investment time frame or when you would need the money. The chart below will help you determine which investment to choose according to time frame.

	Time Frame	Concern	Suggested Investment Type
Short-term	Less than 5 years	No time to recover from a drop in the market.	Money Market Funds, short-term Certificates of Deposit.
Intermediate-Term	5-10 years	Need to grow investment with time to handle market volatility.	Mixture of stocks and bonds or balanced mutual fund.
Long-term	10 years or more	More stock as there is time to recover from market downturns.	Stocks offer best potential rewards.

 

Since all through our lives we will have short-term, intermediate-term, and long-term goals, how do we manage all of these levels, and consider our risk tolerance and our life station? We do it through a strategy called asset allocation. Basically, asset allocation is how much of our portfolio we use for each type of investment. Here are some examples of asset allocation.

 IMAGES CREATED BY GAVS