ABLE accounts give you the option to potentially grow your money or to have your money available for ongoing disability-related living expenses. Or to do both!
Whether you decide to place your money in an ABLE checking account, or to save for a disability-related expense in one of the investment options, there are four questions you should ask yourself when deciding what’s best for you:
1. What disability expenses do I want to save for?
- Am I planning to use these funds to pay for ongoing expenses that require easy access to funds on a regular basis? Example: Weekly therapy or extra job coaching.
- Am I looking to save funds for a rainy day? Example: I get laid off from my job.
- Am I saving for a larger, more expensive item that may require a longer savings timeline? Example: A new place to live or an accessible vehicle.
- Do I want to use the funds for all of the above?
ABLE accounts can be used to save for expenses you have regularly, for emergencies, for future expenses, or for a combination of all of these.
2. When will I need the money?
- What disability-related expenses do I need to pay for today, tomorrow, next week or next month? These are called short-term expenses.
- What disability expenses do I want to save for down the road, perhaps in one to three years? These are called medium-term expenses.
- What disability expenses do I want to save for in the longer term? Example: over the next four years or more. These are called long-term expenses.
When thinking of savings, think about your short-term, medium-term and long-term disability-related expenses. This can help you decide whether and which of the checking or investment options are right for your ABLE account.
3. What is risk?
Risk is any uncertainty in the financial markets, now or in the future, that has the potential to negatively affect the money you invested. In other words, when you invest your money, the investment values might rise or fall because of market conditions, which means that your account balance could increase or decrease. This is not the case in the ABLE Checking account option. In the ABLE Checking account option, your funds are insured by the Federal Deposit Insurance Corporation (FDIC) and are not exposed to market fluctuations.
4. What is my risk tolerance?
How do changes in financial markets affect what I want to use my ABLE funds for? How will I feel if the value of my ABLE account balance changes because financial markets are going up or going down? Your answers to these questions will help you determine your “risk tolerance.” It means the degree to which you, the investor, are comfortable with your invested money increasing or decreasing because of fluctuations in the financial markets.
Think about the current, medium-term and long-term disability-related expenses that you are saving for and decide when you will want to use the money in your ABLE account. This will help you decide what your risk tolerance is and will influence which ABLE investment options you choose.
Match your investment choices with your needs, your timing and your risk tolerance
Below are some examples of how some hypothetical account owners go through the process of matching their needs with their timing and risk tolerance in making their investment and/or checking option choices:
John’s short-term goal is to save enough money to buy a computer at the end of the year. He will not be comfortable with the possibility of the value of his investment going down between now and the time he buys the computer. John’s risk tolerance could be described as low. Based on his needs, timing and risk tolerance, John is considering the Conservative, Moderately Conservative and the Checking Option.
Anne’s goal is to buy a new wheelchair in about three years and she wants to begin saving for it now. She hopes to see the value of her investment grow steadily so that she can pay for a new wheelchair, but understands this is not guaranteed. Anne decides that she has moderate risk tolerance for the potential ups and downs of the financial markets and that a combination of stocks and bonds will best fit her needs, timing and risk tolerance. Anne is considering investing in the Moderate, Growth, or Moderately Aggressive Option or a combination of those options.
Lisa is a toddler with a disability whose parents want to grow her ABLE account to use after she finishes high school. Lisa’s parents are comfortable with potentially big swings in the financial markets and know that prices may fluctuate a lot over the long-term. They would be considered to have high risk tolerance, and they decide to invest funds in the Moderately Aggressive and Aggressive Investment Options, where there is a higher chance for fluctuation in the account value both up and down, but also a higher chance of returns over the long term.