Financial Planning Fridays #66: Your Investment Mix Menu

One of the most important decisions you will ever make for your family’s long-term future is the blend of stocks and bonds in your investment accounts. This mix will be by far the dominant driver of your investment returns. It is crucial to choose an investment allocation that matches your financial plan and then rebalance to maintain that allocation over time.   

Let’s look at a menu of potential investment models to consider together.   

This chart shows the average annual return and the growth of a $1 Million investment in various mixes of the Vanguard S&P 500 fund and the Vanguard Total Bond fund over the past 30 years. As you are thinking about the next 30 years for you and your family- which one would you choose?

However, before you make that important decision, you also need to consider the likely temporary declines you will face along the way. Will you be able to stick with your investment allocation during the inevitable regular downturns in the market? 

A higher percentage in stock vs. bonds over the past 30 years has led to a much higher portfolio value but in order to achieve that return you would have needed to stick with your choice during multiple declines of 18-55% during that time.  

You would have needed to stand by your investment allocation when the media was calling for things to get even worse and people were saying, “this time is different”.  If you were able to do that, you likely have the right investment allocation for you.  

We have also found that it is much easier to stick with your investment allocation when you have a financial plan so that you understand why you have that allocation and the rate of return that your investments need to earn to reach your goals on time. 

Please feel free to reach out to us anytime to discuss your family’s own investment allocation and your future. 

Be on the lookout for our next Financial Planning Fridays episode. Subscribe to our Youtube Channel so you never miss an episode. Or contact us directly; schedule your 15-minute call with us today.