If you are seeking investment help, look at the video here on my services. If you are seeking a different approach to managing your assets, you have landed at the right spot. I am a fee-only advisor registered in the State of Maryland, charge less than half the going rate for investment management, and seek to teach individuals how to manage their own assets using low-cost indexed exchange traded funds. Please call or email me if interested in further details. My website is at http://www.rwinvestmentstrategies.com. If you are new to investing, take a look at the "DIY Investor Newbie" posts here by typing "newbie" in the search box above to the left. These take you through the basics of what you need to know in getting started on doing your own investing.
Friday, June 13, 2014
We realize that time is the investor's big ally. Even a small difference in return over a long period can make a huge difference. An 8% return on $10,000 compounded over 40 years gives you $217,245. Increase the return by 1% and the ending value is $314,094. Our mantra is "get invested early and correctly." Warren Buffett is the shining example of this. Fifty years ago, he was investing in well-run companies and holding on to them.
The time frame is referred to as investment horizon. Understanding and thinking about your investment horizon is an important piece to determining an appropriate asset allocation. Other things being equal, the longer your investment horizon the greater the tolerance for volatility and, therefore, the greater the capacity to take on stocks. In layman's terms, the longer your investment horizon the more time you have to recover from a market downturn.
Most people have a longer investment horizon than they think when it comes to retirement planning. For example, many people think right-off-the-bat that the investment horizon is the expected retirement date. And it is, if you think you might drop dead on that date! Otherwise, you probably want to continue to have your assets earning a decent return. In fact, you may need them to continue earning a decent return for 30 or more years.
Another consideration is that you may have as a goal to leave an inheritance. Now the horizon shifts from how long you are going to live to the life expectancy of your heirs.
The bottom line is that your investment horizon is probably longer than you think! As a caveat, keep in mind the rule of thumb of investing very cautiously for monies you will need within 5 years. For example, if you are saving for a down payment on a house, your horizon is probably less than 5 years. Keep these funds in very short-term bond funds or money market equivalents.