INVESTMENT STRATEGIES - Your Investment Timeframe

Your Investment Timeframe
When evaluating investments, it is important to have some idea of
your timeframe.
In other words, when will you need the money?

Some investments have a known timeframe. For example,
if you are saving for a child's college education, you know exactly
when you will need the money. Other investments might not have a
precise target date but you still know whether they are long or
short term.
An example would be someone in her 30s or 40s saving for
retirement—she does not know exactly when she will retire, but
she does know it is many years off.

Why is knowing your timeframe important?
It has to do with the volatility of different kinds of investments.
In particular, it has to do with the fact that stocks, while the
proven best investment over the long term, might go down in the short
term. If you need the money, you might have no choice but to sell at
the low price.

For example, suppose you invest in an index fund.
It's a darn good bet that in 5 or 10 years you will have a nice return,
but in one year—who knows? The idea is that for the short term,
you would invest in low risk, low return vehicles (bonds, money
market accounts, treasuries), but for the long term, you are better
off in stocks.

What is short term and what is long term?
There is no agreed-upon definition of these terms. Generally it
seems that two years or less is considered short term, five years
or more is considered long term, and the middle period is sort of
up for grabs!

When Long Term Becomes Short Term
When you have made a long term investment—,
for example—and are nearing the date when you will need the money,
that investment suddenly becomes a short term investment.
It might be a good idea to move it from higher-risk to lower-risk.
For example, when my daughter was in high school, I started moving
her fund from stock mutual funds to bond funds.