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The Wrong Time HorizonMistake 1

Average life expectancy increased from 47 years in 1900 to almost 78 in 2004. Do not underestimate how long you might be around. The tables show that it could be longer rather than shorter, so consider investing your funds accordingly. Have you ever had the thought or concern, “Do I have enough money to last?”

When people get concerned about preserving money, having enough of it, and wanting to keep it close to the vest, what types of investments do they often make? Usually lower-yielding investments. Instead of looking at other investment options including annuities, income funds, or mid- to long-term GICs, they keep their investment capital in a short-term, cashable GIC, or even worse, a low- or nointerest bank account.

If you can earn higher returns on a longer-term GIC, why would you buy the short-term GIC? My response is that with the shortterm GIC the return is good for six months, after which you have the option of reinvesting your money in another GIC or any other investment vehicle you choose. Although the return might be lower, these shorter-term investments facilitate the need for liquidity better than the long-term GIC.

On the other hand, longer-term fixed-income securities typically provide for a higher income, which can be helpful in meeting current needs. For these reasons, it is very important to consider, before you put your plan in place, the trade-off between your living needs and your potential need for liquidity.

Everyone’s goals are different. As people age and get older, they might think that they should invest for a shorter and shorter time horizon because they are getting older. In some cases, this can be a big mistake. In a lot of cases, I advise that investments should outlast one’s life expectancy.

Ultimately, either you are going to out-live your money or your money is going to out-live you. Assuming you have the financial ability to make this choice, I should think you would rather have your money out-live you.

Statistics suggest that a person who reaches the age of 73 will live another 14 years on average. Assuming that life expectancies stay the same or increase and your life expectancy follows that of the average person, your portfolio at age 73 might need to keep working for an average of 14 years. Therefore, if you want your money to last as long as you do, wouldn’t it make sense to consider investment strategies to help you meet your living needs for another 14 years instead of 6 months or 12 months?

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