Setting goals is a first step to investment planning. The next step in setting your investment goals is: What is my time horizon? In other words, when will you need the money? Are you investing for your child’s college education in 17 years, or for your retirement in 30 years? Or is your goal to buy a house in three years, or start your own business in five years?
Long-term or short-term?
The longer your time horizon, the more opportunity you have to invest in higher-risk investments, such as common stock or real estate. This is because the longer you can remain invested, the more time you’ll have to ride out economic cycles and market fluctuations in the hope of getting a greater return in the future. Of course, there is no assurance that any investment will not lose money.
The shorter your time horizon usually requires a conservative approach, because you have less time to try to recuperate from a market downturn. You may want to concentrate your investments in less risky vehicles that can easily be converted into cash.
Adapt to changes
As your life changes, your objectives are likely to change, and it makes sense to update your time horizon. For example, you may have set your initial goal of sending your child to college in 17 years. But time has passed, and your child will be entering college in two years. You should probably change your allocations based on the current time horizon. That may mean moving funds from higher-risk to lower-risk investments to ensure that the needed money will be available. Imagine the stress you might feel if the tuition is due while you are waiting for that risky stock to rebound from the tumble it took three months earlier. Imagine the stress that can be avoided by planning ahead and monitoring and rebalancing your allocations as your time horizon changes.
For more information contact Rebecca Robins, CPA/PFS, CFP®, at 661-702-9680. The office is located at 25001 The Old Rd in Stevenson Ranch, CA 91381, CA Insurance Lic#0D75745.
* Securities offered through H.D. Vest Investment ServicesSM, Member SIPC, Advisory Services offered through HD Vest Advisory ServicesSM, a non-bank subsidiary of Wells Fargo & Company, 6333 North State Highway 161, Fourth Floor, Irving, TX 75038 (972) 870-6000
Robins Financial Inc. is not a registered broker/dealer or independent investment advisory firm.