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Your Investing Time Horizon

What we don’t have in common with professional investors is that we have no clients to impress. We don’t have to constantly provide positive returns, nor beat a benchmark. There a pressure on us to demonstrate to a client within a few months or a couple of years that we are capable of high portfolio returns.

One of the key advantages of being a solo investor is that we have a long investing time horizon. For the average investor it’s more important to have enough for retirement than comparing performance charts every quarter.

This is an important point and it gets overlooked when comparing active investors, such as hedge funds, to passive investing strategies such as indexing.

The pension and endowments need to have a positive return every year because they have to pay bills out of their funds every year. Many operate on such thin margins that 2-3 years of poor returns, or, far worse, negative returns, would wipe their pensions out.

This would leave pensioners without income.


Investing Time Horizon

I regularly check on my investments mostly because I am interested in the various market forces which affect my portfolio.

I don’t plan on living off of my investment portfolio anytime soon. So, as long as the underlying investment is sound, it doesn’t matter if my investments go up 20% or drop 20% in the short-term.

The securities market has to spend more time providing positive returns than negative returns. Therefore, the longer you can stretch your investing time horizon, the more likely it is that you’ll have a larger investment portfolio in the future which means more income for you.

More Opportunity

More time also means more opportunity – whether it means that you’ll invest more at opportune times or whether you’ll cash out when the markets are at an all-time high and you are ready to decrease your risk exposure.

In practice it would look like this; I am retired but still earning an income from some work. When the market is performing poorly then I can decide to buy more of the same viable index funds at a lower price.

And when I get into my 60’s and I experience a market boom then I might decide to cash out a large portion and purchase an annuity.


Stretching Your Time Horizon

When I first started investing in stocks, my main goal was to lock in immediate returns – short-term gains. I didn’t spend adequate time researching individual company stocks to determine whether they were sound log-term companies worth holding on to.

Later, I decided to get into index funds and understood that the market as a whole must go up in order for investors to continue putting their money into such funds.

I didn’t ever appreciate the importance of the time horizon, however, until I slaughtered one of my investment accounts in order to buy my condo in Portland.

I had invested in that private brokerage account for nearly 3 years, diligently. It was made up of mostly total US index funds and 10% was in bonds. I cashed out the entire $185k.

$140k wet to purchase the condo and the rest to pay off my remaining student loan balance.

The yellow line below shows how much I had in my taxable, private brokerage account before cashing it out. And you can see that it took nearly another 3 years to get it back to the $200k-mark.

If I had stretched my investing time horizon on that particular account it would now be 6-years-old and quite a bit larger than its $185k value. Not to mention, I would also continue adding more money to it every month.



Your Individual Time Horizon

How old are you? When do you want to start accessing your investments? How far can you stretch your investing time horizon?

There are several ways to stretch your time horizon. 1) By not cashing out your investments early. 2) By generating some of your income in retirement from work. 3) And by maintaining adequate risk in your investment portfolio.

Cashing Out Early

Looking back I wouldn’t have cashed out my investments early. I would have still bought the condo but would have taken on a mortgage instead.

This would allow me to have a low-interest rate mortgage while having adequate funds to pay for the condo at any moment. But I was so debt-averse that it hurt me slightly financially.

Andrew, my financial advisor, leaned towards me getting a mortgage. But a financial advisor is only as effective as their willing client.

Hope you can learn from this mistake.

Generating Income in Retirement

Even once you’re retired, you can continue to stretch your investing time horizon. Because the less you consume of your investments, the longer they can continue to grow.

You can generate some income during your retirement. It doesn’t have to be work in a profession you dislike. A little money from a rental income property will allow your securities portfolio to continue compounding interest.

Maintaining Adequate Risk

An investment portfolio can’t grow if it doesn’t have enough risk. Too much risk and the investor will freak the fuck out; too little and your portfolio won’t perform well.

This swings back to the stock/bond allocation argument. How much should you have?

Asset allocations need to be adjusted. There is no set-it-and-forget it asset allocation model for the average investor.

For someone with millions and millions of dollars invested and multiple sources of income and a flexible retirement budget, yes, it’s possible to have very little risk exposure but not for someone like myself.


What Steps to Take

1. Don’t panic. Should you see your investment portfolio drop in value, don’t panic. Remind yourself that your investing time horizon is relatively long and reassess at a future time.

2. Adjust asset allocation. If you are closer to retirement and need to live solely off of your investments then you must cut your investing time horizon short. In that case, it would be best to position yourself in far less risky assets.

3. Retirement Income. Keep an eye out for income ideas which you can pursue in retirement. Think of fun things, don’t make it a chore. It might be making shit on etsy or being an illustrator for websites.

4. Flex your retirement budget. It’s good to remain flexible in retirement when it comes to your budget. You can cut your spending when portfolio returns are weak and you can inflate your spending when returns are high.