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Pattie Lovett-Reid

Chief Financial Commentator, CTV


I was recently asked, “What should I invest in to get a guaranteed rate of return in the market? And how long do I need to be invested?”

Veteran investors know there are no guarantees when it comes to the markets and your time horizon is often dictated by when you might need the money. For example, if money is required in a relatively short period of time (less than five years) sitting in cash or a near cash equivalent such as GICs or money markets might be the best course of action. The last thing you want to happen is a severe market correction and not have enough time to recover from the drop because you need the cash.

The longer your time horizon, the better your chances of an uptick and the better your chances if you take on riskier assets.

Adrian Mastracci, discretionary portfolio manager with Lycos Asset Management Inc, breaks it down this way: “Your mission critical is to align investment risks incurred with the appropriate time horizon.”

  • An investing time horizon of less than five years implies that you cannot afford to incur a major capital loss. Allocation to stocks is likely under 20 per cent
  • An investing time horizon of about 10 years affords more reasonable tolerances for losses. Allocation likely increases to around 50 per cent
  • An investing time horizon of 15 years or more is better able to withstand prolonged market mayhem. Allocation to stocks could reach 70 per cent

Mastracci believes many investors can’t wrap their mind around long investing time horizons. And yet we need reasonable horizons to not only accumulate but also spend the nest egg. One of the best strategies is to learn to live with investment time horizons lasting 20 years or more.

Years ago I had the opportunity to meet and chat with Jeremy Siegel, a finance professor at the Wharton School of the University of Pennsylvania. He has been a strong proponent of investing in stocks for the long run and when asked why he said, “Over the short term, stocks can be a very volatile asset class. But over the long run, stocks perhaps are the most stable asset class of all, delivering the highest returns.”

And finally when defining your time horizon, if you are a younger boomer thinking you might only have 10 years to retirement, keep in mind the normal retirement age is closer to 65. For some people, it’s even older than that.

The bottom line is, you might have longer than you think and be in a position to take on more risk in your portfolio than you realize. For some investors, thinking in decades may take some getting used to. But getting used to investing for longer periods despite market volatility could be the golden investment rule.