Time horizon

There's obviously more than this, but there's really two major ones that I've noticed.

The first one is what kind of return you're trying to achieve, and the second one is what is your time horizon? How long are you going to be investing in, i- investing for? So let's talk about the first one, uh, which is how, uh, what kind of return that you're trying to aim for.

So if you're just trying to aim for a market average return, if you just want to get six to 10%, then there are a couple of options.

One, you could invest in index funds and just accept the market return, and the other option is that there's plenty of businesses, great businesses at the moment, that are offering between six and 10%, even at the current levels.

So that's just something I wanted to mention because don't assume that just because you invest in an index, you're guaranteed to make 8% or something like that.

Be aware that you could go through periods where you earn significantly less, uh, and that it actually could be beneficial to be more in cash and to take control of your investments and actually invest in individual businesses.

But the final thing I wanted to talk about was the other factor, which is your time horizon.

So depending on your time horizon, you would want to be more defensive or more aggressive.

So going into that a little bit deeper, I suppose, what are some of the factors to consider when trying to measure someone's capacity to accept the risk on offer for these investments?

The first one I would look at is the time horizon of the investment.

The longer the period before the money is needed, the more time investors have to recover from any market falls.

So we're sure time horizon reduces capacity because losses may need to be realised before markets recover.

The other main one that I would look at is just the investment sequencing.

Forecasting expected withdrawals can be matched with cash and other defensive assets.

Where do we fund income from when markets fall? We're doing our best to make sure that we can continue to cover their expenses whilst we keep their funds invested.

Then we can allow our growth assets to work hard to ensure that the nest egg lasts throughout retirement, while the defensive aspect of the portfolio covers those near-term needs.

I mean, often we're really worried about losing money and there's a short term and a long term to this.

So let's just start with the sort of time horizon and risk.

How do they influence each other?

Yeah.

But when we look back, You know, those crises that seemed so large at that particular moment fade into the distance.

And what you're left with is markets which ride through those peaks and troughs, through those various crises at different points in time and deliver those inflation beating returns.

So I think risk should really be quantified and thought of as what am I standing to lose here? But also, very importantly, over what time horizon?

Um, I mean, the issue here is around growth assets, right? You need to have assets that grow.

Yeah.

Um, next one on my sorta list is looking at the time horizon that you've got in terms of the, the money that you're investing or considering to invest.

How long have you got to, to do that? So the way that we tend to think about it, if you've flagged and earmarked that money for, um, a future need that's short-term in nature, call it one to two years, you might go more conservative and say, "Hey, I don't really wanna expose it to markets because of volatility.

Um, so I'll go something that's, that's a little bit more stable." Think kind of like maybe a bond or a term deposit or something like that.

We've been paying attention to the things that are being said out there as to what you ought to be doing right now with your investments.

You know, one of the things that we often talk about with investors, Jim, is time horizon.

So when you're talking about time horizon, putting an investment portfolio together based on when you're gonna be using the money, we talked about that returns are very, very important.

But there's another thing that's important, which is risk, and how to balance those two things.

So talk a little bit about, you know, just when you're having a discussion with somebody on time horizon, how you broach that subject with an investor.

investor.I will do that.

I wanted to touch on one thing 'cause we just finished-

[laughs] Okay.