SIMON BROWN: Giving your money the time it deserves

There’s an old advert that says it’s not about timing the market but rather time in the market — and it’s totally correct. But there is more to time than just having lots of it. 

Make no mistake: the more time you have the easier it is to create wealth. Letting that compounding effect kick in does wonders for your portfolio. 

But I also want to dispel the myth that we’re only investing until we retire. Sure, at retirement your income will now come only from the investments you’ve built up over the past decades.

In this case, those investments are still growing, ideally faster than you’re withdrawing money. Somebody in their 20s now is likely to live past 90, giving them seven decades of investing and letting time work its magic, which is way more than the 40 years we usually work with, assuming that at age 65 we retire and stop investing. 

This is an important point for anyone planning to retire at 65; namely, that your odds of living into your 90s are now 50%, which means you still have three decades of investing ahead of you. 

In other cases, we don’t have the luxury of time. Say for example you have saved for your wedding, which is a year away. You want to maximise the growth of those savings over the next year for a grand wedding, but the stock market is not the place for the money. What if markets fell by half in that year and now only one of you can afford to get married? 

Matching risk with needs and time means that for a short-term investment you stay away from the market. Rather, you should use cash products such as money market, bonds or income funds. They’re boring but the money will still be there when you need it. 

Typically, any money needed within the next three years should not be in the stock market — keep it in lower-risk cash or cash-like investments. 

This also applies to your emergency fund, which should be three to six months of expenses. Here again do not put it into the market, rather keep it in cash products. But you don’t need all those emergency funds available right away. You could have one month in a cash call account available immediately, with another two months in a 32-day call account and the rest in a 90-day call account. This will mean better yields for the two other accounts, and if an emergency hits you’ve got some cash at hand with more ready to call within 32 or 90 days. 

Sometimes, the hardest part about our understanding of time is the constant noise from the market, which screams for our attention. Most of today’s hype will be forgotten in a few weeks and is totally unimportant in the decades ahead. 

We need to keep a clear head and always remember the time we have ahead of us — or the time we need. It’s equally applicable to crises and passing fads that won’t, ultimately, matter.