• Home
• Personal Finance
• Economy
• New School
• Asked & Answered

• ABOUT
• FAQ
• RESOURCES
• ADVERTISE
• CONTACT

Timing is Almost Everything

Timing in investing, much like in life, is absolutely essential.  Understanding our timing is a function of good planning and executing a (written) plan.  One of the most important factors in investment decisions is timing or time horizon – when to liquidate (or sell) investments.

Investment timing and time horizons are an important part of any financial plan or investment plan.  During the planning process, one of the most important questions we have to answer is when will we need the money we are investing.  The answer to this question is our time horizon – it is the beginning of our investment period to the point in time when will need the cash from our investments or when we will need to liquidate (or sell) our investments.  We may need the cash for a new house, college or retirement but regardless of reason, knowing and understanding time horizon is absolutely important.

Time horizons determine our investment mix, investment allocations or portfolios.  Time horizons determine when you liquidate investments.  They determine what to do in volatile and or turbulent markets.

Our investment portfolios or investment allocations change as we get closer to the end of our time horizon because investment objectives change.  In the beginning of a time horizon, the objective is to achieve higher returns or growth while toward the end of a time horizon the objective becomes to preserve capital or investments (don’t want to lose what was earned over time).  For example, in the case of retirement planning, a younger person (30-40 years from retirement) may consider more growth or higher returns in their portfolio which may be reflected by a higher percentage of total assets being stocks and less in government or municipal bonds.  An older person (5 years from retirement) may consider preserving the capital earned over the 20 or 30 years of investing by having investment allocations or investment portfolio more heavily weighted (higher percent) toward less risky investments like government or municipal bonds.

Risk and time horizons are extremely important factors to understand.  A younger person who seeks growth or higher return investments is accepting more risk.  They have more time to recoup any potential investment losses.  They can afford to accept more risk.  An older person who is investing conservatively and trying to preserve capital or investments cannot afford the risk because their time horizon is much shorter.

Understanding our time horizon is extremely important in times of turbulent markets such as we see today.  If we have a long time before the end of our time horizon we should stick to our plan.  Don’t liquidate (sell) investments, particularly stock and stock related investments too early.  Remember, we have more time to make up for any potential losses in the stock market.

If our time horizon is shorter or the end of the time horizon is five years or less then it is crucial to review our plans to determine if adjustments to our investment allocations or portfolios need to be made.  But if proper planning was done we may not have or have very few riskier investments in our portfolios, in which case just stick with the plan.  But if we are holding riskier investments, particularly stocks, we should consider selling because of the current turbulent economic times.

We strongly encourage people to consult with a qualified, knowledgeable professional such as a financial planner if we are not sure about our situation.

Good luck.