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Big Questions for Money Moments

I’d like to invest not only in the stock market but also in various startups and maybe in an investment property or two. What’s the right amount of money to put toward these various investments?

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Diversifying your investments in many different types of assets is usually a good idea, but not all investment opportunities are created equal. Each has its own set of costs, tax implications, risks, and return prospects. For example, investing in startup companies is a high risk/high return proposition. While startups have the potential to grow at an exponential rate, most actually go out of business. So, you should invest in them if you’re prepared to lose your entire investment. Conversely, the real estate market may go up and down, but real property always retains some value. However, you should not expect real estate investments to go up at the same rate as stocks. Finding the right mix of investments is what’s most important. The challenge is that what’s right for others may not be right for you. Here are several things to consider when deciding how much to invest in what types of assets.

  • Be sure the overall riskiness of the entire portfolio is aligned with your goals, time horizon, and risk tolerance. This is perhaps the most important thing to remember when building an overall investment portfolio. For example, while you can afford to take more risk with money that you do not plan to touch for the next 20 years, you shouldn’t be too aggressive if you want to buy a home in the next year. If you’re not sure how risky an investment is, remember that risk is correlated with return. Any investment that has the ability to earn double-digit-plus returns, also has the ability to fall in price — and probably by quite a bit. There is no free lunch when it comes to investing.
  • Look for opportunities to diversify. If you own an expensive home, it may be unwise to own investment property, especially if it’s in the same neighborhood. Similarly, if you want to invest in startups, investing in an angel fund with stock in multiple companies may be better than investing in one or two individual startups.
  • Consider “bucketing” investments based on your various goals. Maybe this means investing your retirement funds all in stocks, while maintaining a more balanced stock and bond portfolio in your after-tax accounts. A “core and satellite” approach may also be appropriate. This strategy entails investing the bulk of your assets — your “core”— in a balanced portfolio of public equities and bonds while having various “satellites” of riskier, less predictable investments.
  • Make the taxes work for you. Take the time to understand the tax consequences of investing in something. Will you be able to control the timing of taxes? At what rate will the gains or income be taxed? Are there any opportunities to minimize or shelter the taxes? For example, you can offset rental income with rental expenses while investments in startups might be eligible for the qualified small business stock gain exclusion. Taxes can materially affect the attractiveness of an investment opportunity.
  • Consider the liquidity, level of participation, and fee structure of any investment. Like many alternative investments, real estate and private equity often have limited liquidity. If you invest via a fund, the cost structure may be quite high. To avoid costly management fees, many real estate investors look to manage investment properties themselves. But if there are significant property maintenance or tenant issues, this endeavor can actually be quite time-consuming. Before you make an investment, it’s important to weigh these issues. It may be well worth the time and money if the potential return is high enough, but each opportunity should be evaluated on its own merits.

The bottom line is that it’s wise to do your due diligence before deciding how to invest your portfolio in various types of assets. An advisor can help you evaluate new investment opportunities for potential red flags, track your investments through time, and ensure your overall portfolio is tailored to your individual goals and objectives.


Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with oices in California, Colorado, Florida, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. Diversification does not guarantee investment returns and does not eliminate the risk of loss. . Investments in Hedge Funds, Private Equity, or Real Estate (“Alternative Investments”) may be regulated less stringently and can involve significant use of leverage, making them potentially riskier than other investments. Investments in Alternative Investments may entail substantial risks. While an investment in any Alternative Investment may result in profits, it may also result in losses – investors may lose all or a substantial amount of their investment. Material economic conditions and/or events may affect future results. Alternative Investments may be partially or all illiquid and have no public market, such investments generally have provisions that restrict the timing and amount of withdrawals. Alternative Investment also have certain requirements that an investor must meet in order to be eligible to invest in Alternative Investments. Please read an Alternative Investments Offering Memorandum or similar disclosure document before investing. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security.


Meet the Author

Aaron Waxman

Partner

Aaron is a Partner based in the San Francisco office. He provides comprehensive investment and planning advice to individuals. While Aaron works with a wide array of clients, he has expertise in working with multigenerational families, business executives, and entrepreneurs with above average income and estate tax planning needs.

Before joining Cerity Partners, Aaron was a Principal at B|O|S and served on the firm’s Board of Managers, strategizing firm-wide initiatives and making critical decisions on the day-to-day functioning of the firm. Prior to B|O|S, he worked for PricewaterhouseCoopers LLP as a Manager in the Private Client Services Group.

Aaron placed on the Forbes “Best-In-State Wealth Advisors” list for the San Francisco region in 2019, 2020, and 2021. In 2019 he also ranked on Forbes “Top Next-Gen Best-in-State Wealth Advisors” list for California and on its “Top Next-Gen Wealth Advisors” list. Additionally, in 2017, Aaron was the recipient of a “40 Under 40 Award” by the San Francisco Business Times.

Aaron earned his Bachelor of Science in Finance from Santa Clara University. He holds both the Certified Financial Planner (CFP®) and Certified Public Accountant (CPA) designations as well as a Series 65 license. Aaron is a member of the Stern Grove Festival Association Board of Directors. He previously served on the Board of Directors for the Headlands Center for the Arts, Step One School, and Blind Babies Foundation.

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