ALIGN YOUR INVESTMENTS WITH YOUR TIME HORIZONS
Friday, 19. June 2009, 10:44:49
The type of investments you choose will depend on whether you are saving for long-term or short-term goals. Your time horizon is the expected length of time you will be investing in order to meet your goal. Determining your time horizon will help you decide which types of investments are appropriate for you.
For your long-term goals, you may want to consider long-term, growth-oriented investments like general equity unit trusts. With this long-term view of your investment there is no need to try and take profits should the market be at exceptionally high or low levels. While risk sounds like something to avoid, there are definite upsides - greater risk offers opportunity for greater rewards. With a longer investment time horizon, you will be better able to recuperate from a bear market allowing investors to assume more risk and hence greater returns.
If you have only a short term investment time horizon, you should stay in money market funds. You will not want to invest in something that could cause you to lose your investment, regardless of how well the markets appear to be going.
In addition to looking at your time horizon, there are at least two other factors that you may want to consider.
First, there is the 'sleep factor'. How much risk can you assume and still sleep well? You need to decide how much risk you can stomach before investing.
The second is the amount of capital you have available to invest. You should never invest more than you can comfortably afford to be without during your time horizon.
Your short-term goals call for investments that are more conservative, and more accessible. For example, saving for emergencies. You'll want quick and easy access to your funds and you will not want to take on any major risk.
Monthly unit trust investors must take cognisance of rand-cost averaging and not try 'time the market'. Investing on a monthly basis will buy more units of a unit trust when prices are low and fewer units when prices are high. Provided the fund gains value over the long term, you will profit from your purchases during short-term declines. When investing 'new' money, first consider your investment goal based on when you are actually going to need this money. Investors must remain disciplined and not interfere with their portfolios with long-term time horizons, so as to allow fund managers to unlock the real value.
Words from the Wise:
'If you are going to sell every time the stock goes down, you will never win, anymore than a general who always retreats when the enemy advances' - John Train
Regards
Shane Thom
For your long-term goals, you may want to consider long-term, growth-oriented investments like general equity unit trusts. With this long-term view of your investment there is no need to try and take profits should the market be at exceptionally high or low levels. While risk sounds like something to avoid, there are definite upsides - greater risk offers opportunity for greater rewards. With a longer investment time horizon, you will be better able to recuperate from a bear market allowing investors to assume more risk and hence greater returns.
If you have only a short term investment time horizon, you should stay in money market funds. You will not want to invest in something that could cause you to lose your investment, regardless of how well the markets appear to be going.
In addition to looking at your time horizon, there are at least two other factors that you may want to consider.
First, there is the 'sleep factor'. How much risk can you assume and still sleep well? You need to decide how much risk you can stomach before investing.
The second is the amount of capital you have available to invest. You should never invest more than you can comfortably afford to be without during your time horizon.
Your short-term goals call for investments that are more conservative, and more accessible. For example, saving for emergencies. You'll want quick and easy access to your funds and you will not want to take on any major risk.
Monthly unit trust investors must take cognisance of rand-cost averaging and not try 'time the market'. Investing on a monthly basis will buy more units of a unit trust when prices are low and fewer units when prices are high. Provided the fund gains value over the long term, you will profit from your purchases during short-term declines. When investing 'new' money, first consider your investment goal based on when you are actually going to need this money. Investors must remain disciplined and not interfere with their portfolios with long-term time horizons, so as to allow fund managers to unlock the real value.
Words from the Wise:
'If you are going to sell every time the stock goes down, you will never win, anymore than a general who always retreats when the enemy advances' - John Train
Regards
Shane Thom
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