Time is a key factor in your success as an investor. With endless choices of investment options available, it’s quite complex to make the right choices that can contribute to successful investing. So, to make it work for you, one of the most important question to be considered is, ‘’what is your time horizon to achieve your end goal?’’. The answer can help you to major extent to decide on best suitable investment vehicle.
Time can affect your investment in multiple ways. Let’s take a look at the investing guides.
✓ Risk and time
The risk tolerance level is affected by element of time. Let us understand this with an example. Let’s say you are planning for retirement which is several years away, then you can afford to invest in relatively risky and high-return potential assets like equity . That’s because you will have enough time to overcome market volatility. In case you have a shorter time span, say about two to five years, then you may want to go with investments that are stable and less risky, even if the returns are lower.
✓ Growth potential
The power of compounding takes time to work. So, the longer one remains invested, the better it is. Let’s illustrate this point with an example: A monthly investment of Rs 10,000 at 12% rate of return amounts to:
So, it can be easily seen with systematic investment of Rs 10,000 per month over the years, the amount compounds very fast when the number of years invested are high.
✓ Targeted objective
Goals keep changing with age, change in lifestyle, etc. So, it’s important to start investing early to build successful portfolio. Goals can be both short term and long term. The timeline of your goal helps you choose the right investment option. For instance, if you have a short-term goal like buying a car, it is best to invest in debt. On the other hand, a long-term goal can be achieved by investing in stocks. You may say that stocks are risky but time generally has a calming effect on them. Give your stock investment some time to breathe and you’d see the famed volatility subside. The up-and-down nature of stocks usually tend to flatten in the long run.
To surmise, time is one of the most important factors that affect investment decisions. It is also the catalyst to see your money multiply.
Returns are a very important factor in investments but it is not the be all and end all. It needs to be weighed with risk and then chosen. However, return is the one factor that can be explicitly measured and thus plays an important role in our investment decisions.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.