Before You Invest, Ask Yourself One Question
Imagine you’ve just received a work bonus, inherited some money, or sold and investment property.
You suddenly have €100,000 sitting in your bank account.
Your first instinct might be: “I need to invest this”
But before deciding where to invest, there’s a far more important question to answer: ” When am I going to need this money?”
The answer the that one question can shape the most appropriate investment strategy for your circumstances
Why Time Changes Everything
Not all investments are designed for the same purpose
Some money may be needed in the next few years.
Other may not be needed for decades.
That’s why your investment timeframe is one of the most important factors when building an investment strategy.
The longer you have before needing the money, the more flexibility you may have to manage the natural ups and downs of investing.
A Simple Example
Let’s imagine two people each have €100,000 to invest.
Sarah wants to buy a holiday home in three years’ time.
David is investing for retirement, which is still 20 years away.
Although they have the same amount of money, they shouldn’t necessarily have the same investment strategy.
Sarah may prefer an approach that focuses on preserving her capital because she’ll need access to the money in the near future.
David, however, has something Sarah doesn’t-time.
With a much longer investment horizon, he may be better placed to ride out short-term market fluctuations while working towards greater long-term growth.
Matching Your Investments To Your Goals
One of the biggest mistakes investors can make is choosing investments that don’t match when they’ll actually need their money.
If your goal is only a few years away, significant market movements at the wrong time could affect your plans.
However, when investing over decades, periods of market volatility have historically formed part of the investment journey, with markets experiencing periods of recovery over time.
That’s why long-term investors often focus less on short-term headlines and more on remaining committed to a well-planned strategy.
Is One Approach Better Than The Other?
Not necessarily.
Both short-term and long-term investing have an important role to play.
The right approach depends on several factors, including:
- Your financial goals
- When you’ll need access to the money
- Your attitude to investment risk
- Your overall financial circumstance
There isn’t a one-size-fits-all solution.
The best strategy is the one that’s aligned with your own objectives.
Building a Balanced Financial Plan
For many people, the answer isn’t choosing one approach over the other.
Instead, it may involve separating money that’s needed for short-term goals from investments intended to build long-term wealth.
By matching your investments to your objectives, you can have greater confidence that your money is working towards the things that matter most to you.
Tracy Sumstad is a highly qualified and experienced Senior Financial Consultant with over 20 years of expertise in the Finance Sector. Tracy is well-equipped to provide comprehensive advice on financial planning and corporate solutions. Her focus lies in helping clients identify their unique values and goals, empowering them to make informed financial decisions that protect and enhance their wealth and success.
