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Investment Time Horizons: A Look at One Key Factor to Sound Financial Planning

If you go deep enough into any industry, there is plenty of jargon and terms that intimidate someone not deep in the lingo. Finance is no different and one of the reasons people often recoil when talking about their finances is that they feel out of their element. The insufficiencies of our education system to educate people on financial matters have long been a topic of conversation. As a CPA firm in Alabama, Sovereign CPA is deeply steeped in much of the financial world’s happenings. 

As part of our life planning services, we work with people to think about their finances in broader terms and then apply it to personal circumstances and goals. Because everyone’s circumstances and financial goals are different, we aim to provide personalized financial help to those looking to commit to a better financial future. 

A Big Name Behind Investing and Long-Term Financial Planning

Even for casual investors or people far removed from the financial world, a few household names have garnered attention. Perhaps one of the most circulated names regarding investing is Warren Buffet. This well-known investing guru has been making money since he was six years old, buying Coca-Cola and selling it back to his friends for a profit. At eleven years old, little Buffett was already buying shares and making more money than people twice his age. Investing and money-handling came naturally to the Omaha boy, as well as mathematics and calculations. He was known among his friends and family as having an uncanny ability to perform complex calculations in his head. 

The Lesson of Patience — Committing to Growth Long-Term 

Among the many things that Buffett discusses when it comes to investment, is the virtue of patience. The age-old adage of “patience is a virtue” applies to more than many life circumstances and can be quite useful in financial decisions as well. Little Warren Buffet learned this lesson when he prematurely sold some of his early shares of City Service Preferred. After a short shift in the market, he held the shares as they went from $38 to $27 and waited long enough until they rebounded to $40. Then, he panicked and sold the shares before they would rebound and go up to $200, losing out on some significant gains. Investing lessons he learned before he had graduated high school informed his life philosophy of investment. Patience, he learned, could be powerful when dealing with long-term investments. 

Famous Buffet One-Liners — Financial Tidbits to Keep In Your Pocket 

A cursory view of Buffett’s financial career will produce many powerful wisdom-filled one-liners. After decades of existing close to the ebbs and flows of the market, Buffet has developed a unique ability to compose snippets of insight into his thinking. Much of his wisdom is based on being thoughtful and prudent with money decisions and understanding the long-term commitment that’s needed to see the fruits. 

Some well-known quotes from the legendary investor include: 

  • “Someone is sitting in the shade today because someone planted a tree a long time ago.” 
  • “An investor should act as though he had a lifetime decision card with just twenty punches on it.”
  • “Do not take yearly results too seriously. Instead, focus on four or five-year averages.”

What Does Investment Time Horizon Mean in Practical Terms?

Long-term investing takes commitment. Most great things in life require commitment and the delay of gratification over time. The amount of time, however, depends on the goal and the needs of the person. Financial life planning is no different. An investment time horizon is defined as the period an investor plans to hold the investment without needing the money back. 

Here are some examples:

  • Short-term time horizon: This may include shorter time investments such as saving up for a down payment on a home or saving up to purchase a car or that boat you’ve always wanted. If you can do it within 2-5 years, that might be considered short-term. 
  • Medium-term time horizon: A longer commitment like a college fund for your child or paying off the rest of your home can be considered medium-term. This might usually be around 10-20 years. 
  • Long-term time horizon: Most people would consider retirement planning a long-term horizon, provided that this planning begins sometime when a person is middle age or even in their 30s. 

Even then, time horizons are not clearly defined because it can very well depend on the type of goal and the time in which you begin the investment, not to mention the type of investment. If you begin planning a college fund when your children are entering high school, that might be a much shorter-term time horizon. The term is often commonly applied to stocks and bonds, i.e. riskier investments and less risky investments respectively. 

Why Does This Matter When Thinking About Your Financial Future? 

If you’re looking for more of a life-planning strategy that involves the direction of your investments, retirement accounts, and retirement, thinking about your investment time horizon can guide some decisions in a more prudent fashion. Time horizons change as time progresses—and if there is one thing we can be sure of in this world is that time always progresses. 

Time horizon relates to your risk tolerance and how much you are willing to withstand before you or your family need to access those funds. 

Find a Trusted CPA to Guide You Through Financial Planning 

Whether you are a small business owner or someone looking to start planning for retirement or your children’s college fund, begin with a CPA that can assess your current situation and provide you options.

Ready to set the course for your financial future? Then Contact Sovereign CPA and get personalized financial services!

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