How Long Should I Invest This Money For?

Knowing how long to invest an excess sum of money is a question many of our clients have. Like many questions in life, the answer is “it depends”.

While no two situations are ever quite the same, understanding the behaviour of the investment markets will go a long way to helping you make an informed decision.

Certainty is only available in the long term

When you invest cash into the stock market (the great businesses of the world), your money’s value fluctuates. This fluctuation is called “market volatility”.

If you invest €100,000, the value will likely fluctuate between €70,000 and €140,000 during the first year. I’m sure you’d agree this is a wide range.

A broad “rule of thumb” is that over any 12-month period, the stock market goes up roughly 75% of the time, declining the other 25%. While these are decent odds, no one knows which outcome we’ll encounter over the next 12 months.

History also tells us that the longer you leave your money invested, the more chance you have of it going up, and the lower the likely downside.

Using the same example as above, if you leave the investment alone for five years, by the end of this period the value is likely to be somewhere between
€100,000 and €300,000.

Invest, but with your eyes wide open.

We arrive at the following conclusions:

1. If you need short-term certainty, the stock market is not the right place for your money.
2. If you do invest in the stock market, short-term uncertainty is unavoidable.
3. The more certainty you need, the longer you should be investing for.

As professional advisers, we recommend that anyone with excess cash aims to leave the money invested for at least five years. In most circumstances, this advice will turn out to be overly cautious, and you’re likely to experience satisfying results long before then.

If you have shorter-term goals and still wish to proceed with investing in the stock market, remember that you could end up getting back less than you’ve put in due to unfortunate temporary market movements. We’re happy to proceed with this course of action if you have these possible outcomes front of mind.

We also have clients who just don’t know how long they want to invest the money due to uncertain plans. It could be anywhere from one year to 10 years. Life, as they say, is unpredictable. Again, in these circumstances, we’re happy to invest if they know the possible outcomes of investing for short periods.

No Year Is Average

To bring the above to life with real examples, below are the recent calendar year returns of a 100% global stock market portfolio:

2017: +12.1%
2018: -5.1%
2019: +20.5%
2020: +8.7%
2021: +18.2%

This shows us that no year is “average”. The results you experience are uncontrollable and unknowable.

While you may invest in a lower returning (less volatile) portfolio, the general theory still applies.

Short-term investing can be successful, but you need to know the numbers going in. Our role is to inform and educate you so you can make an informed decision.

What’s Next?

If you’re ready to explore investing we’re here to guide you. Let us help you turn your financial resources into a plan that lets you maximise your return on life. Contact us today at 01 908 1500 or email us at info@metisireland.ie.