How to Invest Depending on When You Need the Money

Investing fundamentally comes down to aligning your investments with your future goals, it’s not just about picking stocks or bonds. And a big part of that is knowing when you’ll need the money.

If you’re investing for something years down the road, you can afford to take more “risk” for potentially higher returns. But if you need the money soon, your priority shifts to protecting what you have.

Here’s how I work with clients to think through this concept:

1. Long-Term (5+ Years): Growth Mode

If you don’t need the money for at least five years (think retirement, a child’s college fund, or a house down payment in the distant future), your focus should be growth. That means the stock market.

Why? Over long periods, stocks historically provide the highest returns. Yes, they fluctuate, but if your timeline is long enough, you can ride out the ups and downs.

2. Intermediate-Term (3-5 Years): Income Focus

If your goal is three to five years away, you still want growth, but with some stability. This is where fixed income (bonds) come in.

Bonds provide a steady income stream and tend to be less volatile than stocks. They won’t grow your money as much over time, but they’ll help preserve value as you approach your goal.

3. Short-Term (0-2 Years): Safety First

If you need the money soon (for an emergency fund, a major purchase, or next year’s tuition bill), your number one priority is not losing money. That means keeping it in cash, such as high-yield savings accounts or money market funds.

Yes, cash earns almost nothing in interest. But when you need certainty, return OF capital is more important than return ON capital. Don’t risk what you have now to try to get a little bit more when you know you’ll need it.

The Bottom Line

Having this perspective when you set out to start investing can save you a lot of headaches. For example, let’s say the stock market starts plummeting. Normally, you might be concerned, but now you remember, “Well, only my long-term investments are in the stock market, so while it’s not ideal, I don’t need the money right now, so I can ride this one out. Sure am glad I have a financial plan! Everyone should work with Hundred Financial Planning!”