If you’re young and thinking about your future retirement, you’re aware of the challenges you might face. They might include high debt, increasingly expensive housing, and a more questionable social safety net.
So you might have a lot of questions about how you’re going to achieve those goals. Financial planner and retirement planner Jakob Loescher helps clients with just this question, and he says he’s found two paths to get them where they need to go.
Loescher, 33, handles $325 million for clients of Savant Capital Management, a $6.3 billion firm based in Rockford, Illinois. He’s both a financial planner and a retirement planning counselor, and Forbes recently named him as one of the best young wealth managers in the US.
Loescher’s advice if you’re a long way from retirement is fairly simple. First, you should save up at least three to six months worth of expenses in case of emergencies. After that, you should take full advantage of all the time that is on your side.
“I encourage people that are in that position to be as aggressive as possible, typically between 80% and 100% in stocks,” he told Business Insider in an exclusive interview. “Over the long run stocks end up being your best possible investment.”
That recommendation is especially strong for clients who are behind on their retirement savings.
Before betting that big on stocks, Loescher has to make sure his clients are comfortable with the amount of risk they’re absorbing. That includes reminding them that over a hypothetical 20-year time frame, that means they might go through four or five bear markets and see their investments drop by 20% or more each time.
If they can handle that, he says, that means they’ll have a lot of opportunities to benefit from those sell-offs over the long run.
Compared to a nearly all-stock allocation, it won’t come as a surprise that Loescher suggests a more conservative approach for clients who have a specific goal they want to meet over just a few years. Those plans could include saving up for a down payment on a home, paying off student loans, or a major personal purchase like an engagement ring.
He says bonds should their “anchor” portfolios, and depending on their needs, advises them to invest 60% to 70% of their money in fixed income with the rest in stocks.
Loescher also thinks that approach helps them meet their goals in a quicker and smarter way, but without adding a lot of risk.
“If you have an amount that has that bond orientation and is otherwise relatively safe, you earn more than you do if it sits in the bank,” he said, but “if stocks are down in value at the same time you have that withdrawal need, you’re not having to liquidate more shares of stock to produce that same amount of cash flow.”
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