I was recently invited to speak to the Investment Club at the Hockaday School, an all-girls college prep school in Dallas. I was thrilled by the number of young women that were in the club due to their interest in wealth management as their chosen profession. As we wrapped up a spirited discussion about my lifetime career in investments, I offered my “if you remember nothing else, remember these three things" advice for the young women. As the words spilled out, I was reminded that these recommendations were kernels of the work we do for our clients - who tend to have attained a level of success that creates financial challenges and therefore demands sophisticated solutions. I was reminded that many money challenges are the same, but the magnitude, resources, and consequences change dramatically as financial achievement transforms the scope of the plan.
I began by recommending that young adults commit to making wealth accumulation part of their budget as soon as they start earning money. Once the proper amount of cash reserves is built, the next step is to invest all you can as soon as you can. Like many major life decisions, there is no perfect time to commit to an investment strategy or a financial plan. It takes work and the discipline to choose saving over spending, which is why we recommend setting up a schedule to review whether you are assigning your money to all of your goals – including short-term spending and long-term investing. Many people delay investing, thinking they’ll wait until they have more money or better market conditions. However, the power of compound growth rewards those who start sooner rather than later – the old adage that time in the market is more important than timing the market remains true. When is the very best time to commit to an investment plan? Today.
Once a young person commits to the necessary discipline to sacrifice for the future, I recommended to the group that they should begin investing in a Roth IRA or 401k as early as possible in their career, while their tax rate is low. This mirrors my advice to clients that they must care about tax strategy. Understanding how your taxes can provide you with financial opportunities is crucial to the success of a financial plan. As you gather tax documents to prepare your upcoming return, take the time to review the tax effect of your 2024 financial decisions, and then commit to reviewing your completed tax return and ask yourself, “Is this how I want to spend my money?” Our proactive tax strategies and sophisticated analysis tools align our clients’ financial plans with their investment portfolios, so their taxes become intentional decisions as opposed to April surprises.
Finally, I encouraged the Investment Club to realize that their financial goals are many years down the road, and thus a diversified investment portfolio overweight in stocks can provide a substantial return over that time horizon. There is no more easily accessible passive income opportunity than the stock market. For long-term investors, the power of compound returns increases, so make sure your investment strategy aligns with your financial goals - in short, you should regularly assess whether you are taking enough risk. Many investors err on the side of caution, keeping too much in cash or low-yield assets, which can diminish your total wealth potential. While risk should always be balanced with your personal comfort level with volatility, a well-diversified portfolio that includes stocks, bonds, and alternative investments can help you achieve substantial returns over time. As with our clients, we encourage you to challenge your comfort zone, review your risk tolerance, and ensure your money is working as hard as you are.
The core principles of a financial plan are applicable to every person, but the specific strategies that result in success for each person, family, or business are unique to them. In the coming weeks we will dive into the financial markets and tax strategies. If you have any specific topics you’d like us to write about, drop us a note at hello@bfsadvisorygroup.com