Building a Future Opportunity Fund
As you’ve built your career and your life, you’ve probably focused a lot on identifying goals to achieve. Your financial plan is likely tied to specific goals, too. If you’ve done any work on budgeting, cash flow planning, or saving for retirement or other milestones, you know that goals are central to the process. They help you determine how much to save, where to invest and what your time horizon is.
If you're maximizing tax-deferred retirement savings and other cash-flow planning goals are on track, but you have excess cash – we have a radical suggestion: Don't put it towards a goal.
Instead, create an open-ended Future Opportunity Fund. The idea is to develop flexibility so that you are ready when the right idea presents itself.
The Benefits of Planning Not to Plan
For many people, money is about a scarcity mindset. When you're always thinking about saving to push towards a goal, you're keeping yourself in a frame of being afraid that there won't be enough. While that may make saving more manageable, it can also limit you from growing. By changing your money mindset to one that supports future growth, you can free yourself.
It becomes an abundance mindset and allows you to think and plan without the irrational fear of running out. This can help you take steps to do things that are truly important to you personally and your family. By putting money away in a future opportunity fund, you plant the seeds of making those opportunities happen. You begin to think creatively and boldly about things that were "someday" and instead bring into the foreseeable future. And if something comes up out of the blue – it doesn't just slip by. You have available capital to seize on chances with good potential.
It doesn't have to be quite that mind-expanding, sometimes the things that will increase your happiness are closer to home, literally. Undertaking a big house project or donating to a local charity are examples of things that might seem impossible at this stage of life – but you might feel different if the funding was available. We'll get into more examples of what the opportunities could look like in a bit, but first, let's see how it works in practice.
The Mechanics of Creating Opportunity
Currently, you probably do most of your saving in two buckets, and they have different investment strategies and time horizons.
Retirement savings won't be available to you until you are 59 ½ and are invested according to how long you are from retirement. For most people in mid-career, they are invested for growth.
Emergency fund savings are explicitly earmarked to be used only against genuine need. For example, losing your job or having an expensive medical emergency. This is invested in a high-yield savings account or other capital preservation strategy.
The Future Opportunity Fund is a taxable brokerage account that invests funds for growth. The funds are meant to be used more than two years away – but that's the only stipulation. Since you don't know when the opportunity will arise, you don't have a time horizon.
The investment plan for this money is a little different because you've already covered retirement savings in a 401(k) or IRA account. This allows you to be more aggressive with your strategy here. Since you'll be regularly adding to The Future Opportunity Fund, it will see consistent inflows of cash. A high-growth strategy with that will be supplemented over time makes this a perfect account to diversify your overall financial picture.
To ensure some of the money is accessible when you invite your opportunity in, you'll want to put some of it in stocks and bonds that are liquid. But for the rest of it, you can explore alternative strategies such as real estate, investing in a business partnership, or investing in illiquid private equity or private credit assets.
These will help the fund grow and expand your idea set when you start pairing up your nest egg with your imagination.
What to Use Your Opportunity Fund For
The ideas are almost unlimited, but to get you started:
If being your own boss has always been a dream of yours, this could provide the foundational capital you need to take the leap. Creating a runway of knowing how much your capital is and how long you have until your fledgling enterprise has to be money-positive is of enormous benefit in the planning process. It keeps you honest and on track for achieving milestones. Having capital also lets you focus since you know that you are not risking your retirement or going into debt.
Buy a vacation home or a rental property. Whether you see it as a place to make memories with your family or as a way to allow you to exit your career a little sooner – or both – adding an investment in real property can be very beneficial from a tax standpoint.
If you've always wanted to develop a talent or skill, having money to fund equipment, training, or education can help you get comfortable with the time commitment.
Dedicate it to collecting. Buying art, antiques, whatever sparks you can become a new dimension of your life.
And saving the best for last – money can buy you time. Taking time off to be with family, to travel, to recharge.
The Bottom Line
Creating a Future Opportunity Fund has more benefits than just a ready source of cash. It can change your money mindset, help you achieve financial and wellness goals, and provide you with the freedom to express your most profound dreams. Getting started isn't hard, and we're here to help.
Andrew Comstock, CFA