Let Time Horizon Drive Your Risk

After months of extreme market volatility due to Covid-19, the stock market finds itself within 10% of all-time highs. While this is a welcome relief for investors, considering market prices in late March, concerns remain with the ongoing economic recovery, Federal Reserve policy, the upcoming presidential election, etc. If you were caught off guard by the market volatility in March, you now have a second chance to better position your investment portfolios for this uncertain environment.

There is an old investment rule, “You can replace lost capital, but you can never replace lost time!” Unfortunately, many investors who suffer massive portfolio losses, shortly before a life event requiring portfolio withdrawals, learn this lesson the hard way. I’m always saddened at how so many find themselves taking unnecessary risks at the wrong time, particularly close to retirement. One way to avoid this scenario is to backward plan and let your time horizon drive your risk. Whether it’s retirement or other cash flow, I would generally recommend the following guidelines:

Short term needs (1-3 years): Any capital needs from your portfolio in this time frame should be considered uninvestable. Remember, time is your enemy during this timeframe! Look for safe investments including cash, money market accounts, CD’s, etc. to ensure your cash flow need is there when you need it.

Near term needs (3-7 years): While a slight increase in risk is acceptable here, look towards assets with minimal principal risk (i.e., high-quality bonds/ bond funds and only the highest of quality stocks, if any). While you may feel seven years is a long time and can afford to take on more risk, remember it took over five years for the broader US stock market to recover after the 2008-09 financial crisis fully.

Long Term (7 years and beyond): Riskier type bonds and stocks are acceptable if your cash flow need is this far off. For those entering retirement, a great rule of thumb is to have a minimum of 10 years of projected cash flow need set aside in safe and secure bonds before looking to invest in stocks. While ten years of projected cash flow is a lofty goal for many, saving early and often will help get you there.

Remember, these guidelines can shift based on your specific case, so be sure to consult with a Certified Financial Planner® before proceeding with any of the guidelines mentioned above.    


Follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.

Fox 6 Talking Points:

  • Value Your Time
  • Understand Your Cash Flow Needs
  • Position for the Long Term



Marshall Clay CFP, JD, is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™.  In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.  Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC (“Welch”), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  More information about The Welch Group and important Disclosures can be found on our website. Consult your financial advisor before acting on comments in this article.