How Should I Invest My Money?

November 2, 2023

By ldraper on November 2, 2023

When I tell people what I do for a living, the same questions often arise. “What stock should I buy?” “Where should I invest my extra cash?” My answer is often the same. “Well, that depends…” 

I equate these kinds of investment questions with asking a doctor what you should do to cure your ailing back or asking a mechanic how to fix a car that doesn’t start. There’s a lot to assess before recommending a course of action. The same thoughtful analysis should be applied to personal finances before making any investment decisions.

There are two key components to an investment allocation:

  1. Risk Capacity – The amount of volatility an investor can afford to take based on the timeframe of their goals, from a quantitative perspective.
  2. Risk Tolerance – The extent to which an investor is willing to endure volatility of an investment, from a qualitative perspective.

Risk capacity is the most important and, frankly, easier to measure. We just need to shift our mindset from an investment-based approach to one based on goals. Investing in this manner can allow you to optimize returns in the face of cash flow needs. A longer timeframe goal generally implies higher volatility and higher potential return on your investment. A shorter timeframe goal generally implies lower volatility and lower return on your investment. Of course, no one can predict how the market will perform in either the short- or long-term. Investing money for long-term goals gives the investor the benefit of keeping more volatile assets invested through downturns to achieve the higher return results that are assumed. A way to buy low and sell high without attempting the impossible act of timing the market!

Next, we must tackle the tricky task of understanding and managing our risk tolerance. Despite logic and reasoning, when the markets fall and our investments temporarily lose value, we feel it in our gut. The fight or flight reflex kicks in and our base instincts may start screaming, “Do something!” For some, that kicks in with a 5% loss; for others a 40% loss. But eventually, it happens to everybody.  

These moments are exactly why you hired a great advisory team! Our guidance helps clients to acknowledge and manage their instincts, and hopefully stick to their investment plan and earn a higher rate of return than they would otherwise. On a long-term basis, this is perhaps our greatest superpower.   

After taking stock of your goals and having deep conversations about our response when the chips are excessively down (or up), there are a few additional considerations to keep in mind when investing:

  1. Investment selection/diversification – Purchasing appropriate investments with low correlation, meaning your investments don’t tend to move the same direction together. 
  2. Asset location – Selecting which account is best for a particular investment, based on tax implications.
  3. Portfolio rebalancing – Reallocating your investments periodically, including when your goals change.

So next time you’re wondering where to invest your money, stop and ask yourself instead, “What are my goals? And how can my advisor help me achieve them?”


The opinions and analyses expressed in this communication are based on RMB Capital Management, LLC’s (“RMB Capital”) research and professional experience are expressed as of the date of our mailing of this newsletter. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is it intended to speak to any future time periods. RMB Capital makes no warranty or representation, express or implied, nor does RMB Capital accept any liability, with respect to the information and data set forth herein, and RMB Capital specifically disclaims any duty to update any of the information and data contained in this newsletter. The information and data in this newsletter does not constitute legal, tax, accounting, investment or other professional advice. Returns are presented net of fees. An investment cannot be made directly in an index. The index data assumes reinvestment of all income and does not bear fees, taxes, or transaction costs. The investment strategy and types of securities held by the comparison index may be substantially different from the investment strategy and types of securities held by your account. RMB Asset Management is a division of RMB Capital Management.

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