I’ve spent my entire career railing against the dangers of market-timing—i.e., dodging in and out of markets based on current conditions. But there is a time when “timing” of a different sort matters. I’m talking about your investment time horizons. Today, let’s look at how to use your personal time horizons to successfully separate today’s spending from tomorrow’s future wealth.
If I could, I would grant amazing investment returns to every investor across every market. Unfortunately, that’s just not how it works. In real life, we must aim toward our financial ideals, knowing we won’t hit the bullseye every time. That’s why I recommend evidence-based investing—or investing according to our best understanding of how markets have actually delivered available returns over time, versus how we wish they would. Our “best understanding” may still be imperfect, but it sure beats ignoring reality entirely. Let’s look at why evidence-based investing based luck-based investing…
There are countless external forces influencing your investment outcomes: taxes, market mood swings, breaking news, etc., etc. Today, let’s look inward, to an equally important influence: your own financial behavioural biases. When we make snap financial decisions that “feel” right but are rationally wrong, we tend to sabotage our own best interests. By recognizing these reactions as they occur, you’re more likely to stop them from ruining your financial resolve, which in turn improves your odds for better outcomes. Let’s explore some behavioural finance examples that you’ll want to prepare for…
As my husband and I approached our late 40s/early 50s, we decided it was time to solidify our previous hastily sketched plans for early retirement. We had worked hard for many years and skimped in places and were confident that we had done everything right to retire early and live our best early retirement lives. However, when we sat down with the numbers, we realized our dreams of an early retirement with travel and adventure were farther from reach than we thought. We both had well paying careers and didn’t feel that we had splurged so much that we should be this far behind. What happened? And, more importantly… How do we get back on track? Once panic-mode subsided, we sat down with some spreadsheets to see what had gone awry and figure out how (and if?) we could still retire early and be able to comfortably afford the things we wanted from retirement. Here’s what we did to right the (sinking?) ship...
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