Time is a key factor in investing
BY CHET OSTERHOUDT
Monday, January 1, 2018
With the arrival of the New Year, many of us will pause and ponder the age-old question: “Who knows where the time goes?” And, as is always the case, none of us really do know. However, wherever the time goes, it will usually be a key factor in your success as an investor.
Time can affect how you invest, and the results of your investing, in different ways:
Growth potential: Contrary to myth, there’s no real way to “get rich quick” when investing. To build wealth, you need patience — and time. If you own quality investments with growth potential, and you give them years — in fact, decades — to increase in value, your perseverance may be rewarded. Of course, there are no guarantees, and you’ll need the discipline to withstand the inevitable downturns along the way. But in describing how long he likes to keep his investments, renowned investor Warren Buffet says his favorite holding period is “forever.”
Targeted goals: To accumulate resources for retirement, you need to save and invest throughout your working life. But along the way, you’ll probably also have some shorter-term goals — making a down payment on a home, sending your children to college, taking a round-the-world trip, and so on. Each of these goals has a specific time limit and usually requires a specific amount of money, so you will need to choose the appropriate investments.
Risk tolerance: The element of time also will affect your tolerance for risk. When you have many decades to go until you retire, you can afford to take more risk with your investments because you have time to overcome periods of market volatility. But when you’re on the verge of retirement, you may want to lower the risk level in your portfolio. For example, you may want to begin moving away from some of your more aggressive, growth-oriented investments and move toward more income-producing vehicles that offer greater stability of principal. Keep in mind, though, that even during retirement, you’ll need your portfolio to provide enough growth opportunity at least to help keep you ahead of inflation.
As we’ve seen, the way you interact with time can affect your investment efforts. So, think carefully about how you can put all the days, months and years on your side. Time is the one asset you can’t replenish — so use it wisely.
This article was written by Edward Jones for use by Chet Osterhoudt, a financial adviser for Edward Jones in Nashville.