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If you’re anything like me, you have a lot of clients who ask questions like, “Should I invest in real estate?” or “What are the hot stocks this quarter I should pay attention to?” I find that many of my clients who ask these questions don’t yet understand the foundations of investments and therefore don’t have the underlying knowledge they need for me to answer these questions. This is especially true of young adults who suddenly have money in their pockets after securing their first ‘real’ job and think this means they need to jump into the stock market ASAP. My advice for you is to encourage your clients to take a step back and look at the bigger picture. This next series of blog posts will go over the foundations that your clients need to understand if they’re going to be successful with their finances.

The first concept they need to understand is the timeline of what they are saving for. Once your clients truly ‘get’ the difference between needs and wants, they can zero in on some goals in the ‘needs’ category that they’ll need to save for. Once they’ve identified the needs, you can help them choose a realistic timeframe for accomplishing those needs and the best strategy to help them get there. Generally, your clients needs will fall into one of the following three categories.

1-3 Years

It’s also important to understand if there is something I call WRF in these goals. WRF stands for ‘wiggle room factor’, and it applies to goals that don’t have to be met within a certain timeframe. For example, I had a client whose husband was being deployed by the military in five years and their goal was to get a home before that. There’s no WRF there because there is an absolute deadline. However, if your goal is to start a business—ideally within the next three years—you’ve got some wiggle room there. This is where emotional flexibility comes in handy.  If you’re not dead set on when your goal needs to be achieved, you can have more options in how you save for it.

Typical goals that fall into this category are buying a new car or having a wedding. In these cases, I always recommend clients save money for the goal rather than invest. Why? Because investing always involves volatility. If you’ve got enough time, that volatility will even out, but 1-3 years is not enough time. Encourage your clients to save money in bank accounts or money market accounts to ensure you have enough to meet your goal in the right timeframe.

3-10 Years

If your client’s needs fall into the 3-10 year category, they have a few more options. These goals usually include things like moving to a new city or state, buying a home, or leaving their current career to start their own business. If the timeframe is 3-10 years and they have no hard deadlines, you can encourage them to both save and invest for the goal. How much of each depends heavily on how much money they will need and when they plan on needing it. The point is, they can deal with a little volatility because they have time for their investments to even out.

10+ Years

The ten-year plus goals are the long-term goals that we most often think of when we invest. These include retirement planning and paying for kids’ education. In these cases, you can really get into investments with your clients. If they fall into the young adult category, they could be looking at a 30+ year timeframe. This gives them plenty of time to ride out any volatility and for their investments to really grow. Of course, they will have smaller goals periodically during this time, and that’s where you can talk about the above options so they are also setting aside money for needs with shorter deadlines.

One of the keys to being a true financial counselor to your clients is ensuring they are well-educated on the foundations of investing. In the next blogs, we’ll explore topics like taxes and real returns so you can make sure your clients’ financial educations are complete!

Have questions or comments on helping your clients understand timelines? Please leave them below!