Having "The Talk" About Time Horizon

Volatile markets, increased complexity and media hype have the potential to distract us from our true objectives for the wealth we have saved and now invest. But those distractions can be overcome. How? It starts with understanding what this often-used, misunderstood term – “Investment Time Horizon” – really means.

Just because someone has a 10-year time horizon does not mean they will sleep soundly like Rip Van Winkle, wake up in 10 years and see how things went with their money.

The reality of today’s sound-bite, mobile-communication society is that investors evaluate their results over shorter and shorter periods of time. Rather than making this a contentious issue between investors and their advisors, they should both seek to discover what the investor’s “evaluation horizon” is. That is, how long a strategy stays in place before its results are closely evaluated.

To take this challenge head-on, the discussion of when one’s goals should be met by, must include over what time frame and under what conditions the investor will judge success or failure.

If the evaluation horizon is too short or wholly out of sync with either’s comfort level, there is not a good match and they should move on. Otherwise, it is like two people watching a basketball game, and one of them considers the winner to be the team that is ahead at halftime.

If the evaluation horizon question is resolved, the time horizon issue takes care of itself. Why? Because the advisor and client both realize that in order to get to the ultimate real-life goals of the client, they must give the investment strategy enough of a chance to be successful, and also agree in advance on what will trigger a change.

This is one of the most significant areas of collaboration that must exist between the advisor and client. Without it, the potential for client disappointment is very high, and emotional decisions will likely occur. For the advisor, getting this discussion and decision right provides a clearer objective for the advisor in doing their job for the client. And if the advisor does not address this area at all? They deserve what they get, don’t they?!

© Sungarden Investment Research


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