At Henssler Financial, we follow a “Ten Year Rule” that is designed so that any money you need within the next 10 years for living expenses is invested in non-volatile assets, such as, U.S. Treasury bonds, CDs or AA or better municipal bonds. The reason for this is that we do not want your liquidity money at risk because you need it for living expenses.
Any money that is not needed within 10 years can be invested in the stock market, real estate or other assets that fluctuate in value. Because the value does fluctuate, you cannot count on them to provide for you at any given time. With the fixed-income investment, we match the maturity to the liquidity need. In a perfect world, we would buy a 10-year Treasury for a liquidity need 10 years from now. With interest rates at historic lows, we keep maturities short to avoid locking in a low interest rate. We are also buying CDs backed by the FDIC, because of the competitive rates we can receive. Often we look at AA rated municipal bonds, as the default rate for general obligation municipal bonds is less than 0.01%. For some investors, we may take nine- and 10-year money and place it in an equity income portfolio for the dividend.
With a 10-year time horizon, if the market declines, you have the ability to wait. You have 10 years before you need the money. You should be able to wait for a recovery in the market, as most business cycles and market cycles, peak to trough, are about five years. You could, potentially, have two business cycles before you need the money.
Having 10 years of liquidity should also help you sleep at night, knowing that the money you need in the immediate future is for all intents and purposes, safe.
At Henssler Financial we believe you should Live Ready, and that includes understanding how we recommend minimizing the volatility in your portfolio. If you have questions regarding your investment strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
