I'm starting to move from the world of CD's and time deposits into market investments. There's $50k in consideration, partly family savings. I have no debt.
My pending decision is to go with a managed MTF account with Schwab. I had a meeting with their financial consultant etc. I'm just trying to clarify a few things for myself before I pull the trigger.
- These days I have very little spare time, and don't think I'd be able to make wise hands-on decisions - especially when coupled with my inexperience.
- I'd go for Schwab's managed ETF account but the minimum is too high.
- My goal is to save and build wealth
- I'm working towards a career shift next year.
- I may or may not buy a house in 2-5 years - no idea at this point.
1. What risk category am I in if I want to see a 4% annual net return over the next 5 years? Over the next 10 years?
I have trouble seeing myself in terms of risk categories. As a general character I'm no adrenaline junkie or foolhardy; I'm not interested in putting all my life's savings in penny stocks (or in Apple stock, conversely). That said, I don't want my money to lose value. I want to beat inflation, and keeping everything in 1% APY CD's (or mattresses) is unacceptable.
2. Liquidity: short-term reaction to market changes is bad, but what about reaction to personal changes?
I'm trying to understand the odd dichotomy of investment accounts liquidity. (If cell phone companies managed to lock us into lengthy contracts, I'm surprised that the financial market hasn't.) You can cash out or modify your portfolio at any time, while at the same time the advisors say "don't think of that" - just put the money in and don't touch it for however many years your horizon is.
Looking at an investment account as short-term is foolish and usually related to panic moves. I get it. But what about personal changes? What if a year from now I feel more confident in my knowledge and want to shift a significant amount of my portfolio from managed to self-traded (funds, not stocks)? Or feel confident and want to shift to a riskier allocation model? Or add money to the account and switch to ETF's? Or buy a house?
I disagree that volatility is related to liquidity. If I cash an ETF now and it's a bad time, I see it as part of the risk, not of the liquidity.
3. What do you do when your portfolio differs from your investment product's portfolio?
I'm sure any investment firm would love to manage all my available money. I'm not willing to put all my eggs in one basket at this point (if ever), so there are more traditional savings available that I'm not touching until I feel more confident.
The result, it seems, is that the asset allocation model I'm discussing with the advisor is very different than my "actual" model. He insists that I must have a cash component. What's the point of having any cash in that account's makeup if once I count my separate CD/savings the result is balanced or even conservative?