Investing with Purpose: Aligning Your Portfolio with Your Life

Picture yourself getting ready for a two-week trip to Europe. You’re not just tossing whatever into your suitcase and hoping it works out. Instead, you’re thinking about the weather, all the walking you’ll do, and the different things you’ll be doing each day. So, you choose clothes that can be mixed and matched, comfortable shoes that still look nice enough for dinner, and layers to handle whatever the weather throws at you. You pack this way because you know being prepared means a smoother and more enjoyable vacation.

Your investment portfolio works much the same way, except instead of packing for a two-week vacation, you’re planning for decades. Yet many people spend more time planning what to bring on vacation than thinking about how their investments should work for them. The truth is, how you divide your portfolio between stocks, bonds, cash, and other investments isn’t just some technical detail, it’s the foundation for whether you’ll be able to afford the life you want.

The foundation for choosing the correct asset allocation starts with a simple question: when the time comes, how much money will you need to draw out of your portfolio on an annual basis? Portfolio withdrawals and their timing, also known as “demand on capital,” are one of the biggest drivers in determining what the overall asset allocation should be within your portfolio. It’s no secret that it can be difficult to pinpoint the exact amount you will need to draw from the portfolio, however, determining a relatively accurate target can make all the difference in making sure your portfolio is working as efficiently as possible.

For many people, proper asset allocation is difficult to determine. One reason it can be tough is that it’s not a “set it and forget it” part of your financial picture. Determining your asset allocation can be boiled down to one simple rule: As your situation changes, including your spending needs, so should your allocation.

There is a common misconception that an investor should be aggressive during their working years (commonly called the “accumulation phase”) and progressively less risky as they near retirement. This approach makes sense in many cases, but certainly not in all cases.

We have already established that spending from the portfolio is one of the biggest drivers of your ideal asset allocation. It’s not surprising that portfolio needs vary among people; there is no one-size-fits-all solution. Maybe you have a pension providing you with a regular income, or income from a rental property and so your demand for capital from the portfolio is low. In this case, it might make sense to have a more aggressive portfolio. Simply put, if there is not an inherent need for a portion of the portfolio in the near term, you have the financial flexibility to take additional short-term risk via a higher allocation to stocks in the pursuit of higher long-term returns.

On the flip side, aside from social security, let’s say the primary source for spending in retirement will come from the portfolio. This likely means your demand on capital is larger relative to your portfolio all else equal. In this case it would make sense to have a more conservative allocation.

It is generally prudent to make sure there are at least a few years’ worth of spending needs tucked away in short-term assets (bonds and cash) to ensure you aren’t forced to sell riskier assets like stocks at an unfavorable time. Keeping in mind that unexpected expenses may arise, it also generally makes sense to build in an additional buffer of conservative assets, especially during your retirement years.

Say you have just retired and for the first time you will need to start pulling money from the portfolio to supplement your spending needs. Now more than ever, you need to be intentional about the overall makeup of your portfolio. You need to make sure your portfolio allocation reflects the need to begin drawing assets from the portfolio. This is why having money in safer places, like cash or bonds, isn’t just being cautious; it’s being smart. When (not if) the broader stock market experiences short-term volatility, you can live off these safer investments while waiting for stocks to bounce back.

Of course, life rarely goes according to plan. Perhaps you have a large, unexpected home repair, or discovered you needed more help as you get older. Your investment strategy should be flexible enough to handle these curveballs. This is why regular conversations with your client centric team matter so much. They can help you adjust your investments when life changes, instead of sticking to a plan that no longer fits.

At the end of the day, your investments aren’t just numbers on a screen. They’re your future freedom, your ability to help people you care about, and your ticket to doing things you love. The best investment strategy is one that actually works for your life, not one that looks good on paper or sounds impressive at dinner parties. It’s the one that lets you sleep well at night, knowing you’ve got a plan that can handle whatever comes next.

So, think about what you really want your money to do for you. Given the recent market volatility, now is a great time to work with your client centric team to ensure your portfolio can deliver on those needs, wants and desires. Based on your unique situation, your team can help you see the big picture, avoid common pitfalls, and make adjustments when needed. Because, just like packing for that European vacation, getting your investment portfolio right means thinking ahead, and staying flexible.