Sitting here today I was looking at a picture I took of an overlook at 6053 feet. The picture was taken during the most recent motorcycle trip my brother and I had. It was during our ride on the Blue Ridge Parkway heading to Cherokee, North Carolina. We had ridden the stretch of parkway through Virginia the prior year and wanted to complete the byway’s path through North Carolina during this journey.
The parkway is a very scenic meandering 469 mile road. It connects the Great Smokey Mountain National Park in Cherokee to Shenandoah National Park in Virginia via Skyline drive. Many people call this ribbon of highway the nation’s narrowest national park and after peering at some of its great vistas I can see why.
I got to reflecting how nice a trip it was and how I am anticipating the next segment in our annual motorcycle jaunt. I then remembered the rain and how it rained so hard we had to pull over several times. Next I remembered how hot it was on that August day before the rain came. Even after all of the ups and downs (literally) of the journey and almost running out of gas, it was a great trip and we got there and back safely.
At this point you are probably asking yourself, what does this have to do with choosing the right investment vehicle? Well the trip on the Blue Ridge Parkway with all of it curves, tunnels, peaks and valleys and the 45 mph speed limit would not have been as enjoyable if we had selected to drive our pickup trucks. Just as in investing, the key to this trip was in selecting the right vehicle for the desired goal.
For example, if you know you are going to need to purchase a new car in 2 years. Say you have set aside some funds to put toward your car purchase. You want to choose the right investment vehicle for this goal. The best investment vehicle for the funds you have set aside would not be an aggressive growth stock in hopes of doubling your money in a couple of years. A better choice would be to select something more conservative like a money market account or a short term CD (even with their low interest rates). The reason is you know the funds will be there when needed in a couple of years. As was the case in 2008-2009, with the aggressive growth stock, your investment could be down 30%, 40% or even more with a major downturn in the market. If the downturn scenario happened with the growth stock, you will have to come up with additional funds to purchase the car you need or you will have to delay the purchase of the car. It could be a real solemn period just waiting and hoping for a quick return in value of your stock position.
On the other hand, if you were saving for a goal that was 5 years or more out then choosing an aggressive stock might be a good choice. Then again putting all your eggs in basket with a single stock might not be the best idea either. But this topic of proper diversification will need to wait until a future blog entry.
Until next time and remember you do not have to have a fortune to start creating one!
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Author
Isaac is a Fee-Only (no products sold) Certified Financial Planner® Practitioner. Isaac founded Stalwart Financial Planning with offices in Fayetteville NC and Durham NC. Isaac provides comprehensive planning and investment management services to individuals from all walks of life. Isaac can be reached by phone at 910-867-8464, or by email (iallen@StalwartPlanning.com). Visit him at Stawart Financial Planning www.StalwartPlanning.com.