Time flies, money grows

Ever wish you could spot Santa on your financial horizon bringing a few surprises for your savings?

Episode 4 of the Zurich Money Mindset Podcast hosted by Ross Hutchison is here. It’s not about catching the perfect market moment but about matching your money to your dreams, no matter how surprising or fun they look from afar. Discover how to invest for every stage of life and make your savings work for your goals.

Transcript

0:03

Whether you are looking for Santa all the way up in the North Pole or slightly closer to home, how far ahead you're looking has huge implications for how you should be thinking about your investments. In this episode of Zurich Money Mindset Podcast, we will be discussing Time Horizon. If you are saving for something in the short term, keep your money safe and try and minimize the drawdowns. It's not a good idea to be in risky products, and you might risk having to sell, when the market is down. Conversely, if you're saving for the far future, you can take much more risk with that investment and possibly, get higher returns on that because you don't need to worry about selling it down tomorrow. We will be discussing that concept and more in this episode of the Zurich Money Mindset podcast, which you can find on the Zurich Money Mindset Hub. We are back! Episode number four of the Zurich Money Mindset podcast. I have been missing in action for little bit of time. I've had some good family news. My wife and I have had a child. I've had less sleep, I've let my hair grow out longer, but the good news is, that the Zurich Money Mindset Podcast content is still free!

Do not forget to, of course: 1:18

Like, comment and subscribe! And in this episode, we're going to be talking about time horizon and how you should be thinking about that with your investment outlook. So in the first episode, we talked a little bit about the time horizon; that's really an important concept in personal finance. Basically, the idea is the longer your time horizon, the further you're looking out into the future, the more risk you can take with your portfolio. Now, I mentioned at the beginning there, that I had some family circumstances changes, and it was a great time for me to think about not just my time horizon, but also the time horizon of my new family as well. So, as I’ve said, I've just had a child who's just been born; now, the time horizon between my child's current, you know, life and retirement is really, really long. And now it’s a very long time, very far away. So the time horizon there is a lot, and in that sense, from an investment perspective, there could be a lot of risk you could take in that portfolio because if the value goes down next year, well... I certainly hope my son is not going to be retiring next year. Now, based on what I've been seeing, the work of Bryan Johnson, he might be living - my son - until about, I don't know, 200 years old now. So the time horizon there is really, really long. And again, that factors into your investments.

And the messaging here is very simple: 2:45

It is not about timing the market, is about timing your needs. Now how should we think about that? So you can basically put the idea of your financial needs into

different types of time horizons: 2:59

We have short term needs, maybe 0 to 3 years out; we have medium term needs, you know, it could be 3 to 10 years, and then, we have the longer term needs as well. And now, the basic idea is, here, you should be thinking about what do you actually need your savings investments to do for you. Well, if you think about it in the first bucket,

the short term perspective: 3:21

Maybe you have a big payment that's coming up in a year's time or maybe even earlier. Maybe you want to have an emergency fund just in case there's going to be a sudden payment. Well, it wouldn't be very wise idea to put it into very risky assets, because there is a chance that those assets could go down and you be forced to sell them, at a time when they have made a loss. And that case, you'd be locking that loss in, in order to meet that obligation that you have. So in that time horizon, it's about capital preservation. And that tends to lead to less risky, maybe slightly lower returning investments generally in the framework. So, it may be, in cash investments, in high quality, fixed income, savings style and products. If we move to something like the medium term outlook, a classic example there might be, if you are a parent whose child is slightly older than mine, perhaps you're looking into, university, or college, or education funding in the future, in the coming next few years, you know, 3 to 10 years. Well, you can afford to take a little bit more risk, in that sense, that money is not due immediately or in the short term. And in that sense, when we think back to our original framing, there was the conservative portfolio, the medium term portfolio, the balanced portfolio or the aggressive portfolio. You can shift that slightly more towards the more aggressive portfolio, because again, that money is not required immediately. And we know there tends to be that

relationship: 4:48

With the more risk you take, the higher returns you get as well, in finance is a key 101. And in the very, very long term here, we have things like the retirement, whether it's my, as I mentioned, my son potentially living to 200 years old. So that's a very, very long term horizon. Of course, that's a slightly ridiculous thing to say here, but the point is, the longer your time horizon is there, the more risk you can afford to take. And what that really means is you're more likely to be able to have more of your investments in products like equities, stock markets, rather than in that high, quality fixed income, government bond style of investments. Now, another point I want to make here is, and everyone knows this, but guess what? Your time horizon is not necessarily fixed. Life changes and things change. In that sense, you need to be flexible about how you think about these things. For example, perhaps because of your educational or job opportunity, you are deciding to move somewhere else than you were previously. In which case, maybe some spending commitments that you thought you had in the future in that location has changed entirely. Has been brought forward, the amount is change. So you have to be, have some level of flexibility around these things. It's very important to be flexible in that sense as well. The other thing is, and this is from a psychological perspective, the movement of markets themselves is,

as I said, there is the concept of risk: 6:18

Prices go up and prices go down. The riskier the assets are, the more volatility you find in that. But you tend to find in classic natural human behavior that people's own time horizon shifts depending on how markets have moved. Now, what do I mean by that? If you have a long term goal that's out there, and you've decided you want to allocate some risky exposure to that, so let's say a lot of exposure to an equity, like instrument in a fund of something of that variety. If that goes down, and you're looking at it, and checking it, you might psychologically react to that, and get uncomfortable about what it means for your horizons in the future and decide to change your allocation, around that. So that could change your own perception of your time horizon. But of course, in reality, your retirement is still as, as it was previously there, you know? So depending on the age you are, that certainly hasn't changed when the markets change. Some things are fixed. And generally in markets there is a relationship between that volatility and returns. So the best advice is normally not to overreact to short term moves in the market, and not to check your portfolio on a second by second basis, particularly if you are in the riskier styles of funds. Lastly, and thinking about that, it’s probably quite a good thing to revisit your time horizons for your investments on a fairly regular basis. It could be annually, it could be more frequent than that. But to sit down and really think about what is it that I'm actually saving for? Why am I investing for? Because at the beginning of this, I said, it's not about timing the market, it's about timing what matters for you. At the end of the day, your investments, your savings are for you and your life, or the objective and intentions that you have. It's not just about watching the money go up, and the number go up on the screen. It's about tying it to something specific. So just to wrap up here in this, slightly more efficient version of the Zurich Money Mindset Podcast, it is about not timing the market, It's about timing your needs. The longer your time horizon is, the more you can afford to take risk in your portfolio. You should really be thinking, on a regular basis, as I said, perhaps annually at what your actual goals are, your financial objectives and tie your investments with those directly. And that can really help you evolve your better Money Mindset.