Why time is your greatest assetBy Randell Tiongson on November 4th, 2014
There are 3 areas that you need to consider before investing: investment objective, risk tolerance and time frame. It is prudent to know those things first before even considering what investment you should be looking at.
Let’s discuss about the 3rd element for consideration — Time.
I have often said that time is perhaps your greatest asset, well aside from yourself. Why is that so? Time is a great way to reduce risk, especially the volatile investments (which are of course, the better investments). Values of investments are often affected by markets and the economy in general. There are good years and great years and unfortunately, there are bad and horrific years when it comes to investments. But, if you have a long term of investments, the chances of you making a big gain in your investment is much better. While good investments are volatile (like stocks), they are generally going to go up in the long term, say over 10 years. That’s the assumption that you are properly selecting stocks based on value and not on hearsay. Investments really grow over time and the longer the time you have, the better the chance for your investments to grow.
In 2008, the whole world was in panic with the financial crisis brought about the sub-prime crisis in the U.S. To learn more about the sub-prime crisis, check out Investopedia. Although the Philippines was not exposed to the whole mess, the financial tsunami that happened in the U.S. had a huge negative effect world-wide. I remember that a lot of people were panicking at that time and many first world investors saw a lot of their money gone in a a flash. Back home, the stock & bond markets were also suffering as collateral damage from the U.S. problem. If I remember it right, Philippine stock market index lost by more than 50%. People who invested in mutual funds or UITFs saw their funds go down by as much as 3o to 50% and I was one of those. While I felt really disturbed by the whole meltdown and the loss of a lot of money, I remained calm because my purpose for investing was long-term anyway. While a lot of people I knew pulled out their investments, I did not do so because my time frame was a rather long one anyway. That decision paid well after since the markets have not only recovered, they have grown substantially over time.
In 2004, I decided to place some money on an equity mutual fund. Not much growth really happened in the following years and worse, the fund saw a big dip in 2008. I kept the money there since I do not need it anyway. A few weeks ago, I got a statement for that particular fund and despite having bad years and really bad years, the good and great years have allowed the investment to grow by 400% from its original amount or a compounded annual growth rate of 14.8% p.a.
In 2008, I decided to put my daughter’s money in a UITF balanced fund — a few months before the great financial turmoil. Like most funds, they lost as much as 30-40% of its original value in a matter of days! Since those funds were for the future of my then high school aged daughters, I just kept it in the fund and never bothered with the losses since my investment horizon was long termed anyway. Today, the value of the investment is about 220% of its original amount, or a growth rate 14.05% p.a. over a span of 6 years.
Time is indeed a great asset and it is a great way to reduce your risk. Given enough time, you can either be an aggressive investor or a conservative investor and both strategies will work. If you are a risk taker and you loose money from investments, you still have time to recover your losses and gain from the bullish years, like my 2 stories. If you are not a risk taker, you can still do the safe but sure way and your money will still amount to something substantial with enough time. However, you can’t be aggressive when you don’t have enough time anymore because it is dangerous to put invest money only to find out that you actually lost part of your money when you need it most. When you are a conservative investor, your money will not amount to something substantial due to the low yields you are getting and the short time for it to grow.
Always remember to be prudent with your investments, but use time as a great leverage for you to achieve your goals.
Get more investment ideas from the Money Manifesto Conference on Nov. 29, 2014. Details HERE