"I'm too old to be a long term investor"

One of the key considerations we have when, following the creation of a detailed Financial Plan for a client, we recommend investing, is to consider how long the money will be invested before it's needed. We call this the investment time horizon.

Due to the unpredictable nature of investment markets in the short-term, our general starting point is an absolute minimum of 5 years, and ideally much longer.

Less than this, typically we'd suggest holding the money in cash. The rationale is simply that we know markets will fall typically every year by around 10%+, with larger falls of 20%+ typically every 6 or 7 years. Since it's impossible to predict such falls with even a smidge of accuracy, we need to make sure we've got time to ride through it.

This is illustrated beautifully by the chart below, showing the narrowing range of outcomes the greater the investment time horizon.

For investors in their later years, it's natural to begin to consider this in the context of one's life expectancy; "I might not still be here in 10 years time", for example.

We totally understand this, but at the same time, we wouldn't see the age at outset as necessarily an important factor when investing. After all, life expectancy is just an average; there will be many individuals who live way beyond and also those who, sadly, get nowhere close.

Regardless, we would question why this is relevant; why is there a particular need for the portfolio to reach its peak at the end of one's life? If there is then fine, but in my experience that's very rare. Would it really matter if the portfolio was down 20% from it's highest ever value when you die? I would argue, usually not.

Often, any remaining funds at the end of life will simply be passed to the next generation. If your Plan shows you will be left with a handsome surplus at the end of your life, then it may be more relevant to consider what your chosen beneficiaries may do with the money.

Even better, perhaps you could have the joy of making gifts to your family or other beneficiaries during your lifetime if you wish, and enjoy see the difference it might make to their lives.

I would even go further, to argue that your beneficiaries should be clapping their hands if your demise should coincide with a stock market rout. Ok the portfolio will be lower, but so will be the Inheritance Tax liability as a result. Provided they have the time to ride out the temporary decline within a well-diversified portfolio, they'll actually end up better-off.

As always, it boils down to having a robust Financial Plan in place, incorporating a well thought-through estate plan to pass any wealth you might leave to your chosen beneficiaries.

Here at Spend Time, we have lots of experience and in-house expertise when it comes to estate and inter-generational wealth planning, and we're always glad to talk these things through with you.

Best wishes,

Michael Roberts FPFS

Chartered Financial Planner and Director

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