ABCs of Investing - Different Goals and Different Time Horizons

Time and risk are intrinsically linked. The more time you have, the more scope your money has to work for you.

Time and risk: Do not take risk if you do not have the time to recover from your losses. i.e. if you need your money in a short time, don't take chances with your capital. But if your time horizon is longer, you can invest in riskier assets that offer potentially higher returns.

  1. Unaware of the different investment vehicles.
    As general guide:
    • Deposits will show annualised returns of around 2-3 per cent.
    • Bonds slightly more - around 5 per cent.
    • Equities can fluctuate wildly in the short term, but over a lengthy time horizon of perhaps 20 years, annual returns of up to 10 per cent can be expected.

  2. Not investing in accordance with your time horizon
    Remember the maxim: Don't take risks if there's no time to recover your losses.
    If you can't resist tangling with short term, high-risk ventures, play the market with money you can afford to lose. Don't subject all your savings to the risk of a share price crash.

  3. Not managing a long term portfolio.
    Does the knowledge that big time horizon protects you from market volatility mean you can ignore your portfolio?

    Don't go overboard. If your life is changing, perhaps because you're getting married or starting a family, the time might be right for adjustments to your asset mix. Changes in the market could also signal that a shake up is due.

Questions to Ask
  1. What investments can I get access to? Do some homework. Look at the various fixed deposit accounts, bonds and equities on offer in Singapore and overseas.

  2. What is my investment time horizon? - Construct the right asset mix to suit that time horizon.

  3. How much management does my portfolio need?. It's your money tree. You may not need to tend to it every day or even every month, but don't let it lie fallow.

  4. When should I have an investment plan? How often should I change it? - Milestones in your life are a good time to relook your needs. 

  5. How liquid is my portfolio? While the idea is to be invested for the long term, it's also good to know how easily you can cash out.

  6. What is my risk profile? Do I want to sleep well now or eat well later?