It’s about time, or, to be more precise, it’s mostly about time. That is the answer to the question on most investors lips, which is ‘How should I invest my money?’ The next question to ask should be ‘How long do I want to invest my money for?’ Your investment time frame is one of the key ingredients in deciding how best to invest your money. The problem is, many inexperienced investors don’t understand the connection between time and investment.
Your investment time frame is the time after which you will need to access the amount of money invested in order to spend it. This is not to be confused with the time after which you will need to spend the income from the money invested. Many people approaching retirement have the mistaken belief that their investment time frame ends at the age of retirement. If things go according to plan, you will still have money invested the day you leave this earth. That could be thirty or so years after you retire. Your money will be mostly used up, but gradually. While every dollar you spend has a different investment time frame, it is more practical to consider three investment time frames – short term, medium term and long term. Money allocated to each of these time frames should have a different investment strategy. Money required in the short term needs to be invested mostly in stable assets, despite the lower return, to avoid the risk of loss. Funds for the longer term should be invested in assets which will grow, albeit with volatility, to get a good return. Funds for the medium term should be a balanced combination of the two.
Investing in this way gives the opportunity for a good return while making sure funds are available when required.