Retirement Mistake No.8: The Wrong Time Horizon
Posted In: Retirement Planning for Entrepreneurs

Average life expectancy increased from 47 years in 1900 to almost 78 in 2004. Do not underestimate how long you might be around. The tables show that it could be longer rather than shorter, so consider investing your funds accordingly. Have you ever had the thought or concern, “Do I have enough money to last?”

When people get concerned about preserving money, having enough of it, and wanting to keep it close to the vest, what types of investments do they often make? Usually lower-yielding investments. Instead of looking at other investment options including annuities, income funds, or mid- to long-term GICs, they keep their investment capital in a short-term, cashable GIC, or even worse, a low- or no- interest bank account.

If you can earn higher returns on a longer-term GIC, why would you buy the short-term GIC? My response is that with the short-term GIC the return is good for six months, after which you have the option of reinvesting your money in another GIC or any other investment vehicle you choose. Although the return might be lower, these shorter-term investments facilitate the need for liquidity better than the long-term GIC.

On the other hand, longer-term fixed-income securities typically provide for a higher income, which can be helpful in meeting current needs. For these reasons, it is very important to consider, before you put your plan in place, the trade-off between your living needs and your potential need for liquidity.

Everyone’s goals are different.

As people age and get older, they might think that they should invest for a shorter and shorter time horizon because they are getting older. In some cases, this can be a big mistake. In a lot of cases, I advise that investments should outlast one’s life expectancy.

Ultimately, either you are going to out-live your money or your money is going to out-live you. Assuming you have the financial ability to make this choice, I should think you would rather have your money out-live you.

Statistics suggest that a person who reaches the age of 73 will live another 14 years on average. Assuming that life expectancies stay the same or increase and your life expectancy follows that of the average person, your portfolio at age 73 might need to keep working for an average of 14 years. Therefore, if you want your money to last as long as you do, wouldn’t it make sense to consider investment strategies to help you meet your living needs for another 14 years instead of 6 months or 12 months?

Fortify yourself with contentment, for this is an impregnable fortress. – Epictetus

If you want to learn how to build a portfolio that can withstand the test of time and market conditions, you can check out our article on Bomb Shelter Investing.

Published with permission from Grant Hicks

The information provided on this site/blog page is solely for general and educational purposes and is based on the perspectives and opinions of the owners and writers. It is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting, or professional advice. Please consult an appropriate professional regarding your particular circumstances. This site/blog page may also contain links to other sites which are not maintained or controlled by us. Access to or use of sites to which links are provided are subject to the terms and conditions of such sites. References to third party goods or services should not be regarded as an endorsement of those goods or services. All information provided is believed to be accurate and reliable, however, we cannot guarantee its accuracy. It may also include forward looking statements concerning anticipated results, circumstances, and expectations regarding future events. Forward-looking statements require assumptions to be made and are, therefore, subject to inherent risks and uncertainties. There is significant risk that predictions and other forward looking statements will not prove to be accurate. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus and/or the fund facts before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Let's Chat