In honor of The Stones playing tonight at the Meadowlands and in light of today's 700 point drop in the Dow... I wanted to share one of my all time favorite articles about how important "Time Horizon" is with regard to proper financial planning and money management. Below is a link to a 2009 NY Times article that did a deep dive into how long it took for investors to "bounce back" after The Great Depression. Here's an excerpt:
An investor who invested a lump sum in the average stock at the market’s 1929 high would have been back to a break-even by late 1936 — less than four and a half years after the mid-1932 market low.
At Sovereign, we believe that proper "money management" can only be done by first doing proper "financial planning". Specifically, we use the Financial Planning process to compile 2 very important data sets:
- How much money does a client need
- When does that client need the money
With this information, we are able to construct discrete portfolios that "firewall" the funds needed in the short-term away from the funds needed in the long-term. By doing this, we are able to help insure that the volatility clients see in their longer term (aggressive) accounts doesn’t spread into their short term (conservative) accounts.
As for the market moves tomorrow, next week, and the short term... Will this volatility continue? End? Increase? Decrease?
We remain 100% sure that we have no idea – in the short term.
However, we do remain confident that funds invested for the long term should still have an “aggressive” bias and that aggressive bias will bode well over time. Conversely, funds invested for “short term” needs should remain conservative and that conservative bias will help weather the storm during this period of high volatility.
So, if you have your time horizons properly defined and your investment portfolios "fire-walled", then, time, will indeed, be on your side...