How much time you got?
My clients know I can sometimes get kind of excited when I start talking about markets, the economy, geopolitics and all that goes along with the investment process. It seems I always end up apologizing during meetings for droning on and on. I probably should be asking the question more often, “how much time you got?” – and, seriously, we do try to be very respectful of everyone’s time.
But the question of time horizon, when it comes to investing, is critical. Simply put, time horizon is the expected period of time for an investment. If you are an endowment with a perpetual time horizon, your investment approach will be very different from an individual who has to try and gauge the existential question of their own expiration date. None of us know how much time we have left to live. That said, we certainly want our assets to outlive us. But there are a number of other considerations to factor in as well. Let’s take a look at a few of the most important.
Short and long-term goals
Oftentimes, we will want to invest a certain set of funds for a particular purpose. Examples include college savings, a dream vacation, a first or second home, an RV, or maybe a home business. Saving and investing for these shorter-term purposes might require very specific timing of contributions, withdrawals and a completely different investment approach than the rest of the portfolio, depending on the particular circumstances. Our approach is to consider multiple scenarios in these situations. It’s actually much trickier to invest for the short-term than for the rest of your life.
Legacy Concerns
The old adage is very true- you can’t take it with you. So, are their individuals in your life you would like to leave an inheritance? What is their time horizon? This is an important question because it is likely not the same as your own. It’s not always the case, but in some situations you may have a loved one in mind for whom you have a specific number or asset base. It can make sense to set that aside and consider a specific time horizon for that beneficiary. There could also be important tax considerations related to different types of accounts and beneficiary designations that can be to everyone’s benefit and those options should be explored.
Sudden Shifts
You may experience a sudden life change that requires a big change in your investment objective. Typically, as we get older and our time horizon gets shorter, logically, it makes sense to gradually change the investment mix. But life happens quickly at times and although the actual time horizon may not shift, the needs of the investment portfolio may take precedence. For example, a big change in current income or living expense, either up or down, could shift the overall goals of investment and therefore a complete rethink of the time horizon and related portfolio allocation.
Investing for others
Similar to legacy concerns, you may have philanthropic aims and need to consider investments that will be in benefit of a favorite non-profit or other organization. In these circumstances, there is a definite need to look at the tax implications and be sure time horizons, goals and beneficiaries all align. There are a number of different advanced strategies to consider that could include donor advised funds, gift annuities, trusts and others that will likely require a team approach working with a client’s tax and legal advisors. And even if the goal is to have an endowment, forever is still a time horizon.
So ask yourself, how much time you got?
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Evervest financial and LPL financial do not provide tax or legal advice or services. Please consult your tax or legal advisor regarding your specific situation.