Know What ‘Long-Term’ Means for You

framing horizonAs we wrote on Monday, market downturns can be good buying opportunities for long-term investors. But what is a long-term investor these days?

Given that the 10-year annualized total return of the S&P 500 is now 1.9% and over five years it’s 0.6%, you should probably rethink your view of “long-term,” says financial planner Eleanor Blayney, president of Directions for Women, a financial planning resource for women.

Her advice for tweaking your asset allocation strategy: Know when you’ll need your money, and subtract five or 10 years from that. If you had planned to retire at 65, normally you might begin dialing back the equity portion a few years prior to that date.

Many investors have operated under the idea that a 10-year window would assure strong market returns or a solid recovery after a slump. Recent history has shown that’s not always the case.

Instead, make 55 or 60 your mental retirement date, and start shifting into a more conservative asset allocation a little earlier, depending on the flexibility of your deadline, tolerance for risk and margin for error—and need for growth. By shortening your investment time horizon, you reduce your exposure to higher risk investments sooner, which can provide some protective armor during tough economic times.

Look at the time: Have you been forced to delay goals because of lousy stock market returns? Are you an entrepreneur? If so, please answer this quick question: How big is your start-up/small business in terms of annual revenue? Check the range that applies