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Take the “One-Way Street” for Long-Term Financial Success
By Aaron Marks
Individuals often emphasize having liquidity with their investments. Most of the time, this is a valid and critical component of financial planning. It is essential to have a liquid emergency fund of cash, U.S. treasuries, money markets, etc., that can be tapped into without the risk of loss due to bad timing or performance. But once that account is adequately funded, the focus should not be on having “accessible” investments.
For this conversation, let’s focus on non-retirement accounts. You might call this a brokerage account, investment account, joint account, individual account, etc. For my personal joint accounts, I view these as one-way street investment accounts. Money goes in and doesn’t come out for years, if not (hopefully) decades or longer.
This conversation is not a debate on the merits of alternative investments, which often have illiquidity to them (hedge funds, real estate, private equity, etc.). This is about having a state of mind where you are saving for the ultra-long term. Too often, people save into an investment account, but it is only there temporarily. That money soon leaves for a vacation, a splurge, or any number of non-critical expenditures. All of this is OK as long as you have a separate and distinct one-way street investment account that will provide invaluable growth and compounding for years to come.
A good exercise I recommend is setting a yearly investment savings goal. Not just a savings goal for money you might need in the short or intermediate term. Set up automatic fixed monthly deposits directly from your paycheck or checking account into your investment account. Also, commit to saving a certain percentage of each bonus or commission if that applies to you. Set your goal in advance and commit to sending your cash down that “one-way street” to future growth potential.
Just because your investments are liquid doesn’t mean you should take advantage of that feature.