Wealth management for beginners, Part 2: Time horizons

Wealth management for beginners, Part 2: Time horizons

– Rich Mashayanyika, Director Cornerstone Asset Management

Cornerstone Investment Advisory Services is constantly striving to improve the way we grow and build the wealth of our valued clients. We believe that one of the biggest steps to financial freedom is education and improved understanding of how investments are put together and how growth is determined.

To help you get a better understanding of the intricate world of wealth management, we have created an all-new educational series of articles, specifically aimed at empowering our clients to be better equipped to make the best financial decisions they can.

Click here to read part 1: Explaining asset classes

In part two of our educational series, we’ll explore investment time horizons and how it affects you and your wealth. Although time horizons can be considered an “easier” part of wealth management, it’s still a very important aspect to consider when constructing an investment plan and portfolio.

What are investment time horizons?

Simply put, time horizons are the amount of time you will stay invested for. Depending on your specific goals and needs, investment time horizons could range between 6 months and 40 years. When a financial advisor constructs your investment portfolio, time horizons are the first thing they will need to determine as it is a vital part of the investment planning mix.

Portfolio managers generally refer to short-, medium- and long-term horizons. Remember that these are very generalised definitions and there is no specific standard. Short term is usually up to three years, medium term is 3- 5 years years and long term .

What are the pro’s and con’s associated with different time horizons?

The other main difference between long and short time horizons is flexibility. Short term investments often grant more flexibility with deposits and withdrawals of funds – think of a 7-day notice savings account where you can withdraw funds by giving a week’s notice. Longer time horizons provide the best results if you stay invested for the long haul, an example would be a retirement annuity which only allows you to withdraw funds after the age of 55, regardless of when you opened it.

How do I choose the right time horizons for my needs?

This is where a qualified, experienced and registered financial advisor and wealth manager is vital. They will be able to provide you with the knowledge and information you require to make an informed decision about your finances. Click here to get in touch with Cornerstone Investment Advisory Services.

Choosing the right time horizon will be based on multiple factors which may include:

  • Your financial goals

What do you want to achieve with your investment? Is it a short term saving for a car deposit or are you planning for retirement in a few decades? Your goals will determine how long you will stay invested for.

  • Your individual situation – family, work and responsibilities

Perhaps you need to save for your children’s education, or you are responsible for extended family members. All these factors will determine how flexible you need your investment to be.

  • Your capital

Often, long term investments may require larger capitals to be profitable whereas short- and medium-term investment may allow for smaller starting capitals. The amount of funds you want to or can invest will greatly determine your time horizons.

Remember to contact Cornerstone Investment Advisory Services if you have any questions about your current or future investments. With more than a century of combined experience, we offer specialist and expert advice. Also, don’t forget to follow us on Facebook and LinkedIn and subscribe to our newsletter for more informative and useful content.

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