Your Investment Life

I mentioned on the Trading v Investing page about “Investment Life”.  I’m sure that this is not a new concept, I first thought it up when I was an IFA.  It seemed crazy to me that people just thought investment markets go upwards and failed to consider the impact of the downside (falling markets @ the wrong time)

What is Your Investment Life?

It’s simply the approximate length of time that you plan to/need to invest.

The events/outcome you could invest for are as follows but not exclusively:  Retirement, general investing, Mortgage repayment etc

The main one is retirement – It usually has a fixed term for which you are to save in i.e. 30 years and then funds are usually required to provide an income for life.  Let’s assume you’re 25 years old and plan to retire at age 65 – your investment life is 40 years in length. Simple.

Planning your retirement can actually be more complicated than I’ve stated above and I have no plans on this site to detail how you should do it, the purpose of this page is to show you various scenarios that can occur during your “Investment Life” which should make you think and consider things!

If the end/termination date of your investment life coincides with a decent upward move in the market you invest in during your Investment Life then you will retire happy.  If it does not then you will not be very happy.

Could this of been foreseen?  Simply YES, the answer is available to buy on W. D. Gann page in my shortcut to Gann

Now you might be asking the following questions:

  • If I knew when the markets where likely to be in Bull & Bear Phase I could invest appropriately – CORRECT
  • How do I know when the markets should be in Bull & Bear Phase? – It’s disclosed in my recommended Gann course!
  • If you can time the markets, doesn’t that make a bit of a mockery to those economists/pundits that think fundamentals drive the markets? – YES
  • What effects on my financial well-being occur if I retire during a positive or negative phase? – You need to investigate!
  • How much per year can I extract from the market? – 30% should be quite doable in any type of market

Okay, let’s assume you’re following me and you fully understand the implications of living through Bull & Bear markets you have to accept this following statement, don’t worry if you can’t, the vast majority of people won’t and can’t come to accept this:

It is impossible to know exactly what the market is going to be doing on the exact day you need to convert funds from investments to income.  You can have a general outlook but not a precise/exact one.  If you keep your retirement date static it comes down to sheer luck as to the payout, if you are flexible and move the date to suit the market conditions you can maximise the efficiency of your funds but at the end of the day your investment life is purely down to the whims of the markets you decide to invest in.  In other words a complete GAMBLE.  If you happen to retire during a massive bear market then it is bad timing – No-ONES fault just bad timing – of which you have to maximise the potentials as much as you possible can and are able.

Scenario 1:     The year is 1999, you have just reached the ripe old age of 50 and thoughts are panning to finishing your working life in 15 years time (2014). So far in your life for whatever reasons you’ve not made any provision at all for old age.  You sit down with a pen, piece of paper and a calculator – your goal is to have £15,000 a year @ age 65.  You think that worst case annuities/drawdown of income will be 5-10% of the fund per annum, based on 5% you need a fund of £300k or £150k based on 10% drawdown rate. 

To save £300k in 15 years = £20k a year (no growth)

To save £150k in 15 years = £10k a year (again no growth)

Both required savings are tough calls to achieve!  You have a decision to make is £15k a year in retirement just too much?  But what if that’s the min you have to have to cover your living expenses?

Let’s assume (like the vast majority of people) you think that to save £10k a year is a stretch, let alone the £20k option!  You look to the stock market to boost returns, it’s a natural conclusion and since 1994 the markets been rising fast upwards.  So you consult a Financial Adviser, pick a portfolio of investment funds/ETF’s and so on and start saving every month.  Fast forward 10 years to 2009 and your no better off than saving into a bank account and receiving a low interest rate for far less risk!  You have 5 years to go to retirement and as it stands you are far from achieving the required £15k a year pension/income. 

As you do not possess a crystal ball you have no idea what the next 5 years will do.  You just cannot understand it.  You cuss and verbally abuse (blame) your Financial Adviser, the Investment Fund managers and the media who are always talking up the market but it’s failed to materialise!

The reality is this person just picked the wrong time to be a Buy & Hold investor, It’s not their fault, It’s not the markets fault, It’s not the fault of anyone – the fact is that this person tried investing a certain way in the wrong market conditions.  During this type of market the trader type wins big time and the buy and hold investor’s returns can be widely variable.

Let’s consider another period,

Scenario 2:     The year is 1981 – everything is exactly the same but let’s assume the retirement date is 1999

This person has picked the most ideal time possible to save/invest – they will think that they are a brilliant investor (whether they truly are or not).  But the simple fact is they grew their money, that’s the target to grow the money to reduce the direct cost of self-funding from income, thereby freeing up disposable income to spend as you wish.

These positive and negative (Bull/Bear) phases of the markets have ALWAYS occurred, they WILL always repeat in the decades and centuries ahead – If you are aware of them you can plan with confidence for your future.  If you are not aware of them then it’s all a gamble and down to luck depending upon the particular phase the markets are in treats you.

Ever wondered WHY Endowment savings plans worked so well in the 1980’s & 1990’s and then fell off the cliff 2000 onwards! (The Answer is above) – they perform well in bull markets but poorly in bear markets!

This is why I advocate trading and not buy and hold investing, there’s a time to buy and hold and a time to trade – It it essential you know the difference and the correct times to be a trader or BH investor.

In the scenarios above I’ve not covered the effects of compounding returns – this is the real driver.  I would encourage people to research for themselves the effects of compounding returns and from the charts below calculate approx gains by trading rather than BH.

I am quite confident that most people do not have a clue when the Bull/Bear cycles commence and I am quite sure that some people will commit their hard earned and saved funds to the stock market at the complete wrong time.  the net effect is that they lose money – just as discussed in Scenario 1.

I would urge you to take an hour out of your life and calculate what it would take to obtain your desired Investment fund total.  i.e. £1000 lump sum investment, over a time period of 40 years achieving an annual COMPOUNDED rate or return of 15% etc – obviously the exact years, initial investment amounts and % ror will be personal to your circumstances.

You should start to think about obtaining a set rate of return per annum and if you are able to do that (via LEARNING to trade/invest properly) how that is going to beat the fund managers out there and more importantly If you can do this consistently then it virtually gurantees financial success as desired!  Performance matters, in fact it is the key factor of Investment, charges and costs (obviously) have an impact but are secondary to performance – the ideal scenario is to have low charges with decent % performance/growth.

Chart ONE:

A really big sideways moving market – this is the S&P500 index

Chart Two:

Years to build, months to destroy

As a Buy and Hold investor you just sit and take what happens.  As a trader you make decisions whether to avoid the falls and only invest during the up periods or you trade both the up and down swings to maximise profit potential.

The bear market that commenced in 2000, still has a few years to run – it has not finished

Chart Three:

The chart above shows the periods when the “media” published positive and negative content about the markets.  The reader is encouraged to research for themselves media coverage during these periods – follow the herd rings a bell.

The most critical aspect of investing, trading or simply being part of the markets is TIME.  Being in and out of the markets at the right time is crucial.  I hope you can see this.

There will always be people that get this right and those that get it wrong – by pure accident, it’s part of life I’m afraid.

By sheer luck a trading course I recommend has produced this free analysis video which pretty much covers the buy & hold argument and your investment life concept I’ve mentioned, check it out here:


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