How Should I Be Invested?

We break down how to choose an aggressive or conservative portfolio using two factors that actually matter: when you’ll need the money and how you react when markets drop. You’ll hear why the same S&P 500 dip can be a disaster for one person and a buying opportunity for another, plus how to think about stocks, bonds, and cash in a simple way. 

• Using three timelines to set your baseline risk level: under three years, three to seven years, seven plus years 
• Seeing 2008 to 2009 as a real-world example of why short-term money can’t take big drawdowns 
• Treating long time horizons as an advantage and staying the course through volatility 
• Using dollar-cost averaging to buy more shares when prices fall 
• Navigating the three to seven year “gray zone” with diversification and professional planning 
• Factoring in emotional risk tolerance and past reactions to market drops 
• Defining aggressive vs conservative as a range of outcomes and risk of loss 
• Comparing common aggressive, conservative, and middle-ground investment types 

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Transcript

Welcome And The Big Question

Speaker 0:16

Hello everyone, welcome back. Stansell Wealth Planning Podcast with your host, Cody Stansell, Financial Planner. Hope you are doing well. It is summer now, as the time of me recording this. Hope your summer is off to a great start. I appreciate your joining, whether you're watching, whether you're listening, appreciate your time. I have a good one for you today. How aggressive or how conservative should my investments be? Right? There's this is the typical case of everyone is different, everyone's situation is different, your time horizon, how you emotionally react to investments in the past. There's a lot of moving parts. So we'll dive in. Let's go ahead and get it going. So get this question a lot. How conservative, how aggressive should my investments be? I'm referring to your retirement accounts, like your 401ks, your IRAs, Roth IRAs, brokerage accounts, your emergency fund. So that's the investment accounts is what I'm referring to. I won't talk about private real estate or any of those other things. When a client asks me, how aggressive, how conservative should my investments be? My next question to them, I have two questions for them. Number one, what is your timeline on using any of this money? Number two, how have you reacted in the past when your investments go down in value? So basically, one is about time, and two is about your emotional response.

Time Horizon Sets The Baseline

Speaker 1:44

Right? So let's dive into the time aspect of it. We use three time periods to gauge how aggressive you should be. So there's less than three years, there's three to seven years, the intermediate, and then there's seven years plus. So think of less than three years, that's short term, right? We don't have much very long. Next one's intermediate, three to seven, and then there's seven years plus. If you are seven years plus until needing this money, and when I say needing this money, I mean spending some of this money, touching any of it, spending any of it, looking at the balance and seriously contemplating things, right? That's what I'm referring to. So if you have seven years plus from needing this money, then it makes sense for your investments to be pretty concerned, pretty aggressive, excuse me, pretty aggressive, right? So if you're in your 30s, 40s, early 50s, and you have seven, 10, 15, 20 years until you retire, or you're, it's not even about retirement necessarily. If you're saving money to buy a boat or a beach house and you want to buy it in 10 years from now, or you have a five-year-old child and you're saving for their college when they turn 18, then it makes sense for those investments to be pretty aggressive since time horizon is pretty long, right? Time is on your side. Subconsciously, we all know this, right? That's why we all have bank checking accounts and savings accounts. You know you'll need to touch that checking account daily, right? So you have it in a bank account where the value doesn't go up and down. It's not invested, right? It's just cash because you're gonna be using it every single day, right? You may have never thought of it that way, but that but you do it because of the time horizon. And the time horizon is so short. So investing it in something volatile just doesn't make sense, right? But when you are less, if you are less than years away from needing to touch this money or even decades, then your investments have enough time to come back from any dip or bad stretch that we may have in the market. So let me show you this chart.

2008 Case Study And The Danger

Speaker 3:47

This is a pretty impactful chart. And for anybody in the industry, they will recognize this chart. This is the S P 500, so the stock market index. When you turn on Fox Business or CNBC and they say, oh, the stock market was down 1% today, they're most likely referring to the SP 500. This is the SP 500 from January 1st of 2008 all the way to April 1st of 2009. Okay, so the great financial crisis, great financial recession. And this is the second worst market we've ever seen in our economy behind the Great Depression. So, not to be hyperbolic, but there this is a very meaningful time in our history for finances. So if you notice here, if you're a stock market investor, January 1st, 2008, it didn't look good, right? It got all the way down the lowest it got was March of 2009. And notice as I move my mouse, you see the percentages change. But I'm gonna hover over March 9th, 2009. The S P 500 was down almost 54% compared to January 1st of 2008. If you are a 100% stock market investor, January in 2008, and you were 55 or 65 and contemplating retirement or contemplating spending some of this money, your balance was cut in half. Congratulations, your balance was cut in half 14, 15 months later. And it's wild, a wild time in our economic history. And you cannot afford this if you are less than three years from needing this money, less than three years from retirement, less than three years from buying that beach house and you've been saving up for it, less than three years from your kids going to college and you've been saving all 18 years of their life, right? You cannot afford this kind of time period. And then let me change the date on you. October of 2012 is over here. I kept the same beginning date, January 1st, 2008. So this is the line I just showed you up until March of 2009. And then look at this. The SP 500 came back, right? It all ended up being okay, but look how long it took to come back up to zero. Basically, it was flat by October of 2012. For any of you mathematicians out there, that's longer than four years. January 1st, 2008 to October of 2012. That's a long time. That's almost five years. So it almost took five years for you to get your balance back. If you had $100,000 invested January 1st, 2008, you rolled the roller coaster to congratulations, you now have, you still have $100,000 almost five years later. So this is a case study for financial advisors in my space, in my spot, in our industry, of time horizon is a big deal on how aggressive or how conservative to be. If you are, once again, less than three years from needing to spend this money, it you cannot afford a market dip like this. And there's other times in our history that aren't this bad, right? But 2022, 2020 with COVID, 2018 wasn't a great year, 2001 with a dot-com bubble bursting in 9-11, right? There's different years and different quarters in our history that don't look quite this bad, but that dips definitely happen. And if you need some less money during that time, not a great strategy. Okay. So I'll stop sharing here.

Why Long-Term Investors Want Dips

Speaker 7:33

So if you have now on the flip side, if you have 20 years from touching your retirement balance, or 20 years for your saving up for a house or whatever it may be, who cares what the value is tomorrow, next week, next year, right? You only care a great analogy, you only care what your house is worth when you go to sell it. And if you plan to live there another 20 years, then who cares what the value is today? You only care what the value is when you actually need to sell it. So on the flip side, if you are seven plus years from retirement, then hopefully you're adding money to your investment accounts, your 401ks, your Roth IRAs. And if you are adding money to your retirement accounts, then you're hoping the market is lower. You are able to buy more shares for the same dollar worth. I see this all the time with clients. When the market goes down, they ask if they should be, they if they should stop adding money to their 401k. But the answer is that's the best time to add to add money to your retirement accounts. You're getting things on sale. So, an example, if you're investing in a mutual fund in your 401, and that mutual fund is, let's just say, $100 per share, that's the share price of that mutual fund. If you're adding $400 per month to your 401k, then you're buying four shares of that mutual fund, right? But if the price of that mutual fund goes down to $50 per share, you're still adding the same $400 to your $401, but now you're able to buy eight years, excuse me, eight shares of that same mutual fund. Then if when the mutual fund goes back up to its original value of $100, like in our example, then your $400 that you added will magically grow to $800. So you made all of that money just because there was a dip. Compare it, compare that to if the mutual fund just stayed at $100 per share and never really dipped and stayed there for a long time, you will have made zero dollars. So you actually want volatility. If you're in your 30s, 40s, early 50s, and the market goes down 5, 10, 20%, that is a great buying opportunity. Keep doing what you're doing, keep adding money to your accounts. You're buying shares on discount. So once again, if you are seven plus years from retirement, you are in the accumulation phase, is what we call it. You are adding money to your accounts. You are accumulating shares. Then you're actually rooting for pullbacks and drawdowns. You're gonna be getting a better deal. If you are less on the flip side of that, if you are less than three years from needing this money, so your child is 16 and you have a college fund for them that you want to start spending when they're 18. You're three years from retirement and you don't want to go back to work if we have another 2008 market correction. Let's say you're two years from buying a new house and you've been saving up for a down payment, all of those examples of being less than three years from needing to touch that money, then those investments need to be conservative, aka the chart I showed you. You just can't afford a bad stretch in the market. So, just like the shard out chart I showed you, if you're too aggressive with your investments and a time that you need to spend a large chunk of it, you're really hoping the money, the market doesn't pull back. The third time frame that I

The Tricky Three To Seven Years

Speaker 10:50

refer to, less than three years, be conservative. Longer than seven years, be aggressive. But what about that third time frame of between three and seven years? This is a more tricky one because historically you will still make money by being aggressive, but all of the planning that you and your financial advisor does are you're doing it based on the numbers, your current numbers. So you can't have a lot of volatility. And any correction definitely changes those plans. When I meet with clients and they are four years from retirement, their current balance has a big indicator of whether we feel confident about them retiring in three, four, or five years. And so we could go through another terrible market and it recoup in three, four, or five years and they'd be okay, but they are sweating bullets during that time because it's is it still a good time to pull the trigger and retire? Is it not? So that's a really trickier one when you're between that three and seven year mark. So, short answer is if you're between three and seven for needing this money, talk to a professional. Everyone's plan is a little bit different on how aggressive or conservative to be. And this isn't all, and it's not an all or nothing proposition, too. I'll bring that up to clients. It's not like your choice is either 100% stock market or 0% stock market, right? You can be somewhere in between. You can do somewhere between, you can do 80% stocks, you can do 60% stocks, 20% stocks, you can go anywhere in between to soften that blow. It's I always say it's degrees on a thermostat. You can go as hot as you want, you can go as cold as you want. So it's not all or nothing. So that's the first indicator is your time horizon.

Your Emotional Risk Tolerance

Speaker 12:35

Okay. Your second one is the emotional component, like I referred to earlier. The second question I ask clients when they inquire how aggressive to be is how have you reacted to market drops in the past? 2024, we had tariffs in the first quarter, and the SP 500 was down 15% at one point. 2022, we had higher inflation because of COVID and the Federal Reserve raised interest rates. The SP 500 had dropped 25% in the fall of 2022. Did you sell? Did you panic? Do you check your balance every Friday and can't handle the ride up or down? I have clients that are a couple of decades until retiring or until they need to use any of this money, but they cannot stomach the ups and downs. So we have them a little bit more conservatively just because emotionally they can't handle it. It's riding a roller coaster, some people can handle it, some people can't. It's spicy food, some people can handle it, some people can't, right? Everyone's personalities are a little bit different. So to reiterate, if you are three to seven years until you need this money and you shrug off any market pullbacks, the market dips, market pulls back, and you say, Ah, I never really checked my balance. I understand it's gonna go back up, I'm okay with it, then congratulations. You can invest your account pretty aggressively, right? If you are less than three years from needing this money, there's a higher probability that we hit a bad year or a bad stretch in the market, and it's not worth that being that aggressive. Even if you shrug off bad markets, we have to have some money conservative if we need to send you this balance. So it's a balancing act of how emotionally reactive you are with your investment balances with that time horizon. You have to play on with one another. There's easy ones, right? If you are seven plus years from retirement and you shrug off markets, be aggressive. It just makes sense. You'll make more money. Another obvious one if you're less than three years from needing this money and you can't stand your investments going down, that's an easy one too. Let's be conservative with your investments, no problem. It's only tricky for clients when you're some kind of combination of long time from retirement, but you hate to see your investments go down, or you're, let's say you're two years from needing this money, but you actually like being aggressive and you actually shrug off bad markets, right? Those kind of unique combinations make it a little bit trickier. If you fall into either of those camps, once again, just talk to a professional. Let's talk. There's too many other questions or topics that we need to go through to dictate how you should be invested.

What Aggressive Really Means

Speaker 15:08

When I say aggressive with your investments, what does that even mean? Right? What am I referring to? The definition to be the higher the range of outcomes, plus the odds of that outcome dictating an investment risk. So I know that's a lot of that's the textbook answer. But here's an example. Take a roulette wheel at a casino. You gamble $50. You will either win another $50 or lose your original $50. That's a pretty wide gap in outcome. It's either win or lose, black or white. You bet $50 and you have a 50% chance of doubling your money or losing it all. That's a very wide range of outcomes. Pretty risky, right? On the other hand, you have a bank savings account. This is a very conservative investment because it will not double, but it will never go down in value either. It only dictates, well, the only thing that dictates your value is you adding money to the account or you taking money out of your account plus a little bit of interest that it earns every month. So your odds of a good returns are less, right? You know what you're gonna make and it's not that great, but they're reliable. But your odds of catastrophe are much less as well. So your range of outcomes is pretty narrow. So just think of your range of outcomes with something that's more aggressive, it's gonna be larger. Common aggressive investments are stocks, real estate, stock market mutual funds, cryptocurrency. Okay. Conservative investments are cash, savings account, money market mutual fund, a CD, certificate of deposit at a bank, short-term bonds. And then there are somewhere in between aggressive and conservative is gold, silver, long-term bonds, balanced mutual funds. So let me show you this chart of stocks, bonds, and bank accounts.

Stocks Vs Bonds Vs Bank Savings

Speaker 17:00

So this is a chart we use with clients, and I'll walk you through it. Basically, this column right here is the S P 500, and we just went back to 1997. And just what were those annual rates of returns? What did the SP make in those particular years? So 1997, it made 33.1, 1998 it made 28 and change. And then right here, bank savings. What was your bank saving? What was the average interest rate on a bank savings account in those particular years? And then bonds. I know we haven't gone over bonds, but bonds are more conservative investments. It's basically a loan to another entity. So a corporate bond, you're loaning your money to a corporation. A municipal bond, you're loaning your money to a municipality, and they are paying you back a fixed interest rate. Okay, so they're seen as a little bit more conservative investments. But as you can see here, and when I sit down with clients, I say, you know, what jumps off at you on this chart over here? The green is positive numbers, the red are negative numbers. A lot of times, clients will say the bank savings account never is red. And you're exactly right. There's never really, I won't say never, but unless something crazy happens, we will never have negative interest rates on your bank savings accounts. They will always pay you something. It may not be much, right? 2021, it was almost zero. 2022 is almost zero. It was until the Fed raised interest rates. So you're not gonna make much, but you're also not gonna go down in value. Back to my original point. When your time horizon is really short, bank savings is great because you know what you're gonna get. There's no surprise. Uh, another thing a lot of clients mention when I ask them what do they see on here? The stocks have much bigger dips than not. So there's not a ton of red, but when they are red, here's 2008, right? The full calendar year of 2008, the stock market was down 36.5%. Not good. Okay. But usually the best years in the stock market usually follow the worst years in the market. So even if you're down 36.5% one year, if you just held on, you would have made your money back, right? It took you a long time. But 2003 was a great year in the stock market. Why? Because last the three years before that were not very good. And then notice here if you are, this is speaking to the clients that are in that tricky part of three to seven years from needing this money, or they're a short-term investor, but they shrug off market dips, or a long-term investor, but they actually care about their balance a lot. Some kind of combination of stocks and bonds, and that's why you always hear that term, stocks and bonds, is they usually have a yin and yang effect with each other. Usually when bonds have a bad year, like 1999, bonds are down 8%, stocks have a great year. And then vice versa, when stocks have a bad year, like 2000, 2002, bonds usually have a great year. Notice here in 2008, if you were retiring that year or two or three years from retirement, if you were a 100% stock market investor, yeah, that's not good. But look how bonds did that year. Bonds did fantastic. So if you were a diversified investor in 2008 and you had one, two, five years from retirement, your balance is probably overall negative, but not catastrophe down 50%. You were actually okay. So being appropriately allocated, invested for your specific time horizon is the most important thing. If you still have decades to go, you will make your money back plus some by just staying aggressive. And the last thing I'll mention about this chart too is all the different red, there's more years that the stock market is red, if you notice here. But if we come down here, we have an average annualized return. So since 1997, even all these dips, everything that's going on, uh this is this data's through the end of uh first quarter of 2026, and the market was down to start the year, the first quarter, it's made its way back. But notice here, average annualized return, if you just stayed invested in the stock market, it's almost double digits, right? Almost 10% on average per year. Notice here, bank savings account on average, you're up a little over 2%. So it's a give and take. You'll never have a down year with a bank savings account, but you're definitely not gonna make as much, or historically you haven't. Right? So there's more ups and downs with stock market investing, but in the end, it's worth it. And you make more money. This is where the 10 year, 20 year time horizon, stay aggressive, you're gonna make more. The bonds are somewhere in between. Right. They're a great counterpart of cash and stocks because the lows aren't quite as low. The highs aren't quite as high. But you're making a little bit more than inflation, right? Inflation on average is two and a half, three percent a year. Uh you're outpacing inflation. Those bonds are usually really great for retired clients that want to keep up with inflation and they need some protection as well. And so this is the point of once again, if you have less than three years from needing this money, your possible outcome of a terrible year is higher, right? So be careful. But if we got five, 10, 20 years, stay aggressive with your stock investments with your stock market mutual funds, they pay off. If you are a long time from needing this money and shrug off market dips, 100% stock market is the recommendation. That's what I recommend for my clients. On the opposite of that, close to needing this money, but you don't like dips, then a combination, savings, bonds, money market, something very conservative is the answer to you. What

Personal Fit, Next Steps, And Contact

Speaker 23:05

so in conclusion, what combination makes sense for you? Everyone's a little bit different. That obviously needs a one-on-one conversation because everyone is different. And what is best for them may not be the best for your neighbor, for your friend based on your goals, your time horizon, your personality is a big part of it, right? And the emotional aspect of it. Your income. If you have your investments, but you have really high income, you can probably shrug off some of these market dips that may affect how you should be invested. How much liquidity you have, your other emergency fund options, how's your bank savings account? Do you have a lot of money in your bank savings? That dictates how aggressive your investments should be. So, not to get gray here, but it really does depend on the individual. Everyone is different. You can't just listen to your coworker, your friend, your brother, your sister. That might be a useful guide, but everyone is truly different. On another episode, I'll go over how not every mutual fund or stock is the same. So, Coca-Cola, let's example, Coca-Cola stock and Tesla stock. Both are stocks, right? That's a true statement that says I'm a 100% stock investor. But if you have a lot of your money in the Coca-Cola, McDonald's, GE, Chevron, that volatility, that price change day to day, week to week, month to month, you better believe it's a lot a lot less volatile than Tesla stock, Nvidia stock, a lot of technology names, biotech names. They're definitely different in how their volatility is. So you can be a stock investor, but if you invest in blue chip slower stocks, like I was mentioning earlier, Home Depot, McDonald's, Chevron, Exxon, compared to technology names, the ups and downs, small cap names, it's very different. So we can go over, I can go through a typical 401k and help you choose what your lineup should be and just go through the differences and all those. But hopefully that is useful. I think that's enough for today. Stay invested. Don't let market volatility shake you out of your portfolio. But you have to have the right allocation because if time is not on your side or you just behave differently to investment ups and downs, then we have to build a better portfolio for you. You can't just follow what your friends or coworkers are doing because everyone's different. I appreciate your time. As always, email us, call us with any questions. Cody at stancelwealth.com. You can visit our website, stancelwealth.com in general, or give us a call 469-606-2040. God bless. Thank you for listening to the Stansell Wealth Podcast. This podcast is for informational and educational purposes only. It is general in nature and may not apply to your specific situation. Please consult with a professional before acting on any information shared in this podcast pertaining to financial, investment, legal, or tax advice. The views expressed by Cody and his guests do not necessarily represent those of Charles Schwab, Victory Financial Group, or any other organization.