Key Takeaways:

• Once you’ve sorted out your investment goals, it’s crucial to ensure that your financial plan can accommodate them.
• A common mistake is underestimating the requirements necessary to meet your estate planning goals potentially leading to unforeseen financial constraints in later years.
• Each investor possesses a unique comfort level when dealing with investment risks. Risk tolerance generally indicates how much price volatility accept with your investments.

How Do I Define Investment Goals?

Estate planning revolves around setting goals that are meaningful to you. Do you want to transfer your wealth to the next generation, leave some of it to your favorite charity, or both?

Once you’ve established and sorted out your goals, you must ensure that your long-term financial plan can accommodate them. Your investment strategy will appear quite different if you aim to secure your retirement and leave a generous amount for charity or family instead of merely covering your retirement needs.

Once you’ve sorted out your investment goals, you must ensure that your financial plan can accommodate them.

How Many Years Should I Invest?

When determining how many years you should invest, your first step involves evaluating the amount of money needed to achieve your estate planning goals and how long you have to realize those goals. We refer to this time for investing as your “investment horizon.”

Your investment horizon is a critical component of your estate planning goals. Let’s say your goal for estate planning is to amass $1,000,000. Assuming a 5% annual return, you must save approximately $650 per month with a 40-year investment horizon.

On the other hand, if you have a 20-year investment horizon, you need to save almost $2,500 a month. Time horizon can have a significant impact on achieving your goals.

A longer investment horizon grants you greater flexibility to weather risk and market fluctuations. If you don’t need access to your funds for ten years or more, your investments have sufficient time to rebound from market volatility.

Conversely, if you need your funds in a year or two, your investments may not have the time to recover from market fluctuations before you require them. In such cases, considering more conservative investment options is wise.

Initiating this process early by calculating your estate planning goals and assessing your investment timeline is vital. A common mistake is underestimating the financial requirements necessary to meet your estate planning goals potentially leading to unforeseen financial constraints in later years.

A common mistake is underestimating the financial requirements necessary to meet your estate planning goals potentially leading to unforeseen financial constraints in later years.

What Does ‘Risk Profile’ Mean?

Investment advisors often discuss the phrase “risk profile.” Each investor possesses a unique comfort level when dealing with investment risks. Risk tolerance indicates how much price volatility you will accept with your investments. For example, are you willing to lose 20% of your investment in six months with an investment with a likelihood of greater long-term returns, or would you feel more comfortable with a loss of 2% with a less volatile investment?

Given people’s varied interpretations of the term “risk,” it’s advisable to contemplate some questions to determine whether you maintain a high, medium, or low-risk tolerance for your investments. Here are a few to consider:

• Would you characterize your investment approach as conservative, aggressive, or moderate?
• Is the idea of minimizing portfolio loss during market volatility or a down market more important than the pursuit of high returns?
• Do you find stable returns more comforting, or are you ready to live with more price volatility when pursuing potentially higher returns?
• When do you intend to start making withdrawals from your investments?

There’s no one-size-fits-all investment. When deciding where to invest your money, it’s crucial to consider your risk tolerance and time horizon. If retirement is on the horizon, your investment strategy may differ significantly from someone who is just starting and has the time to weather more market volatility.

Each investor possesses a unique comfort level when dealing with investment risks. Risk tolerance generally indicates how much price volatility you will accept with your investments.

How Can Inflation Impact My Plans?

Inflation is a necessary consideration when developing how much your estate needs to be. Over time, inflation makes everything more costly, and will hurt your plans. The upshot is that you’ll likely need more than you think to reach your goals.

How Can Taxes Affect My Plan’s Results?

Various taxes at the federal, state, and municipal levels can impact your investment portfolio—and thus your estate—in addition to inflation. Fortunately, you have several strategies to reduce, mitigate, or defer these taxes.

One popular method for tax deferral involves saving for retirement through a 401K account provided by your employer. These accounts allow you to set aside a portion of your salary tax-free until you withdraw the money during retirement. The underlying idea is that you’ll likely be in a higher tax bracket while working, but in retirement, you’ll likely be in a lower one.

Another way to minimize your tax burden is by establishing a charitable trust. When donors contribute to this trust, they can avoid paying capital gains tax if the assets are sold outright.

Additionally, you can take advantage of the gift tax exemption. The IRS permits you to gift up to $17,000 per individual in 2023 without incurring any taxes.

How Will Unforeseen Events Impact My Investments?

Beyond inflation and taxes, additional factors can potentially affect your investments. Interest rates, political instability, and natural disasters can influence the stock, bond, and real estate markets. While downturns in the market can be unsettling, it’s essential to consider that they can also offer opportunities to acquire assets at a lower cost.

In summary, where and how you invest will make a major impact on your estate.

Final Thoughts

At Lawson Kroeker, we spend a significant amount of time thinking about our client’s future goals, their financial plans and our role in helping them get to where they want to be. We know our clients have many estate planning options available. It is important to take all of these considerations into account when thinking about how to grow your money. We construct a custom estate plan just for you.

About Lawson Kroeker

Lawson Kroeker Investment Management, founded in Omaha, Nebraska is a third-generation wealth management firm that helps a select group of high-net-worth clients achieve their life goals by providing investment advice and building custom investment solutions.

Lawson Kroeker provides a broad, thoughtful, prudent, and ongoing financial roadmap tailored to each client. We focus on and understand each client’s risk tolerance and needs—whether growth, capital preservation, tax mitigation, or special situations. We also help clients with trust and estate management and philanthropy services.

Adam Yale, Partner and Portfolio Manager—Mr. Yale started his investment career in 1997 with First Manhattan Co., an investment advisory firm in New York, NY as an analyst of publicly-traded real estate securities and direct real estate investments. From 2006 until the 2022 merger with Lawson Kroeker, Adam was the sole Principal at Red Cedar Capital, LLC, a Registered Investment Advisory firm he founded that employed a fundamentals-based investing strategy. He earned a B.A from the University of Michigan and a Master’s in Accountancy from the University of Denver.

Bruce Van Kooten, CFA®, Partner and Portfolio Manager—Mr. Van Kooten has been a Lawson Kroeker Partner and Portfolio Manager since 2006 and has more than 45 years of institutional and private investment management experience. Bruce has worked as a trust investment officer with First National Bank of Omaha and as a senior investment portfolio manager at KPM Investment Management and Wells Fargo Private Asset Management in Denver. Bruce earned the Chartered Financial Analyst (CFA®) designation in 1987 and is a member of the CFA® Society of Nebraska. He has a Bachelor of Science degree in Business and Economics from Iowa State University.