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"Speculation is an effort, probably unsuccessful, to turn a little money
into a lot. Investment is an effort, which should be successful,
to prevent a lot of money from becoming a little."
-Fred Schwed (1901-1966), US author |
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How Long is Long Term?
One of the most common questions for clients nearing retirement or even those well into retirement involves the appropriate investment time horizon. Does someone age 50 have the same time horizon as someone age 75? The answer may surprise you...Because it is yes- they have essentially the same time horizon for investment purposes.
The reason for the time horizon question usually entails a desire to pull back on the risk lever as time marches onward. The Washington Post article linked here explains the utter futility of trying to "follow the crowd" and be in the market sometimes and out of the market others. The problem, in reality, is that for most investors, they will need to maintain the majority of assets in the equity markets forever in order to maintain purchasing power. Your time horizon, in effect, never ends.
One of the purposes for having some investment assets in fixed income in the first place is to smooth out volatility so that you are less likely to jump out of the markets at just the wrong time. The other reason is that you can use that segment of the portfolio to make withdrawals (if you are already retired) so that you won't have to liquidate equities at the wrong time. A 60/40 or 70/30 portfolio contains enough fixed income for several years' worth of typical withdrawals so that the inevitable rough spells can be handled without panic.
- James E. Wilson, CFP®
Everyone wants to focus on investments and the asset side of the balance sheet (which is important), but all the good can quickly be erased by mismanagement of personal debt/liabilities. We have developed a system for looking at the types of debt and how they potentially impact long term financial planning goals. Learn more in our next STAT issue in two weeks.
We often site the repeated studies from Dalbar, Inc. that explore the impact of behavior on investment outcomes. This article sites a different source, but with (not surprisingly) similar results:
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WealthRx® is J.E. Wilson's unique wealth management process, designed with successful physicians in mind. Learn more. Contact 
