Investment Strategies

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A conversation about investing starts with these building blocks:

  • Setting your financial goals
  • The most common investment assets (asset classes)
  • Understanding risk and working to determine your level of risk aversion

In Investment Strategies, we will use those topics as the foundations for determining your investment strategy. An investment strategy provides you with the blueprint for:

  • Determining the mix of asset classes that will allow you to save for your goals, while matching your risk profile
  • Selecting investment options that minimize taxes now and/or in the future
  • Managing your investments going forward to keep your investments on track toward your goals
  • Evaluating your strategy and making adjustments as your situation and goals change

Asset Allocation

Asset Allocation is the combination of stocks, bonds and cash that make up your total investment portfolio. Individuals who are more risk averse or need income generated from the portfolio will likely use a conservative portfolio, investing in a higher percentage of cash and bonds. Investors who have a longer time horizon or want to generate higher returns will likely use a larger allocation of stocks in their portfolio.

Tax-Preferred Investment Options

Using tax preferred investment options throughout your investment strategy might reduce your current income taxes and significantly increase how your money works for you. It is important to understand the tax implications of your investments.

Tax-Free Bonds

Some government and municipal bonds provide earnings that are free from federal and/or state and local income taxes. These investments may offer attractive returns due to the fact that any income earned is subject to lower or no tax.

Tax-deductible Contributions with Tax-Deferred Earnings

This investment type allows investors to contribute pre-tax dollars, and the earnings on these investments are not subject to federal income tax in the year in which they are earned. Taxes are paid on the contribution and earnings when distributions are taken. Some examples are:

After-tax Contributions with Tax-Deferred or Tax-Free Earnings

These investments are funded from dollars that have already been taxed, and earnings are not subject to federal income tax in the year in which they are earned. Upon distribution, the earnings may or may not be taxable. The IRS sets limited annual contribution amounts. Examples include:

  • 529 college savings plans: qualified withdrawals are federal income tax-free if used for qualified higher education expenses. Learn more at investor.gov and savingforcollege.com.
  • Roth IRAs: qualified distributions (generally, once you are age 59½ and your account is open for at least five years) are federal income tax-free. The IRS allows a federal income tax-free withdrawal before age 59½ for first-time homebuyers (subject to limitations), although the five-year rule still applies. Learn more at the IRS's website and Fidelity’s website.
  • Non-traditional IRAs: earnings grow on a tax-deferred basis, and taxes are paid on the earnings when you withdraw funds. Learn more at the IRS's website.
Tips & Resources - Investment Strategies
If you are self-employed, there are tax-advantaged retirement options that you can use for retirement savings. See the IRS website.
Work with a financial planner to put together a portfolio that best fits your goals, risk tolerance, time horizon and use of tax-advantaged accounts.

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