Investing For Your Own Time Horizon
Every talking head on the television and every armchair investor are seemingly willing to give an opinion on many different investments. There is a lot of good and bad information available. What’s most important is not only that the information is correct but also that the investment matches your own time horizon. If you are investing for your kids’ education 15 years down the road – what happens over the next six months isn’t very important.
I recently met with a young married couple to discuss their financial goals and objectives. They had very different views on investing. The wife has worked full time in public accounting, however had very limited knowledge of the investment markets. Her limited knowledge made her more averse to risk than probably necessary. She wanted to make sure they had a certain minimum of cash, available any time in an emergency fund. The husband has a history of taking a lot of risk with his own investing. His main focus was on the long term and growing their assets in order to have a comfortable retirement. They were constantly at odds about how things should be invested. My goal was to come up with an investment policy that would allow them to sleep at night and meet their objectives.
Our discussion began with reviewing their main goals and time horizons – saving for retirement (20-30 years away) and keeping an emergency fund (6-12 months). After we discussed these goals, I gave some education on the markets and investments and directed them to subscribe to and read our blogs along with some of our past Sigma Summaries for ongoing education in between our meetings. We discussed how there are a number of good investments available; however we need to make sure we use the correct investments that match up with their time horizons in each “bucket.”
Emergency funds should be invested in low-risk liquid assets such as money markets. Retirement funds can be invested more aggressively since the time horizon is longer. By putting assets into different “buckets” and assigning different time horizons, we can develop a thoughtful investment policy that can meet both short term and long term needs. Matching the correct investment to the correct time horizon is just as important as making sure the investment is a good one.
Any questions or comments are welcome.
Marisa A. Lenhard, CFA, CFP®