Time is our most precious resource.
We can’t make more of it, it’s difficult to manage, and everyone wants some of yours. We can try to stretch time, to enjoy an event or experience for longer, but the clock ticks relentlessly forward: time waits for no one.
When we’re investing, the length of time an investment can be held is the single most important factor to consider. Given enough time, risky investments become safe, and safe investments become risky. Over the last 30 years, risk-free T-Bills have averaged 3.3% per year—barely above inflation. By contrast, the S&P 500—with all its ups and downs–has grown 10.6% per year.
If your goal is to retire in 30 years, safe investments don’t help very much. But if you want to retire in 5 years or less, having all your money in stocks is foolish. There can be multi-year periods where you’d have to draw on the funds when the market is down.
Safe investments keep you from having to sell stocks after they’ve fallen—turning temporary price fluctuations into permanent losses. But the longest duration investments—those that in the short-run are the most volatile—are the ones that return the most over a long period.
Having an investment plan that takes time into account is critical to investment success. Because there’s always enough time, if we use it well.
Douglas R. Tengdin, CFA
Chief Investment Officer