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What's long-term?
Valued Contributor
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What's long-term?

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A recent email I received concluded with the line “I'm looking at long-term say 5 years”. Wow.

When I was a kid growing up in the 80’s my grandfather always impressed on me that anything less than five years was considered short term and that was as short a time frame for investing in the stock market and I have loosely stayed with this theory.

I agree that for an investment five years should be the minimum duration as this is typically the longest period our market goes without a positive return. So, worse case you break even albeit still losing out to inflation. Further a share price needs to time to reflect fundamentals and in the short term the prce will be driven by all sorts of noise. Long-term it'll be driven by those fundamentals.

Back to my grandfathers advice. These days I base short-term as three years as that’s what SARS uses to decide if you are a trader or an investor. This SARS distinction is important as traders get taxed at their marginal rate whereas investors at their capital gains rate which is 40% of the marginal tax rate with a R40k exemption every year.

So, for me short term is a holding that is expected to be less than three years. Medium term is up to ten years and long-term is decades plus.

Think about it. We’re living well into our 80’s and even 90’s, three years is but a blip in that time horizon and real wealth creation via investing is easiest with decades of time. Of course, we’re in a hurry to get rich, but that hurry is more likely to bankrupt us rather than make us rich. If our portfolio is beating inflation by say 6% a year we need to give it decades to create real wealth and we need to think in these long decade time frames rather than weeks or months.

A last point on trader vs. investor and the tax treatment. I keep my trading and investing in separate accounts so that they are nice and clean come tax return time. There is still only one monthly admin fee and log in but when I log in the there is a drop down with the various accounts all in my name. So I am able to simple submit separate trading and investing activity to SARS.

 

Simon

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8 Comments
Frequent Contributor

Long term if you are 80 is tomorrow. But I agree broadly with your comments - and especially about the desireablity of  keeping stuff  clean. I have three accounts - one of which is the TFIA and the other I "advise" my wife on.

At the risk of endlessly repeating the obvious- there is a basic  principle that people experientially telescope into short term (ism) when it comes to selecting their investments. And that is that your investment objectives( which includes a timeline and a desired outcome - beating inflation with a margin  ) should determine your asset choices (or allocation) . IF I am an 80 year old saving for my birthday next month then I am probably not going to the ALTEX?

And of course if I am truly investing for the long term - then I am not going to be fussed about noise - because time in the market is a free choice - along with our old friend diversification . After that ...not much is free!  

Regular Contributor

I have a different view about time. With advancements in Technology  (Internet , on-line banking , mobile banking , emails , instant messaging - whatsapp , twitter , FB) the concept of time has changed. More can be done today in less that we could in the 80's , 70's and 60's.  For me time has speed up . So short term is two years , neduim term 2 to 4 years and long term anything over 5 years.

Regular Contributor

People are also always connected. Mobile devices allow acces to email, internet and make it possible to access Calls anywhere.

Valued Contributor

@partridge1 yip except 80 not as old as it used to be .. this week on my twitter feed there was an 85 yo lady buying her fist merc .. she'll live to 100 easy ..

 

@Mr_Money sure thing quicker, but I don't agree for a second that 5 years is long term. All that is doing is making money for the brokers and SARS. Current rally on SP500 is now 7 years old? SHP* took 4 years to regain its highs .. Top40 has gone sideways for 3 years. If we paniced about the latter two coz we missing out, what's the strategy?

 

Bigger issue, just as we're living longer you compressing long-term? When my grandfather hit 90 he was the oldest in his retirement village. My mother in law is turnign 85 and 30% of her retirement village is older than her. There's a mis-match between longer lives and shorter long-term surely?

Valued Contributor

think what I trying to say is that don't confuse an ability to respond quicker with shorter long-term ?

Contributor

I think also NB to differentiate between the impact of time on tech advancements vs money. Does a more connected generation mean that the way money grows and how we build wealth changes - speaking specifically on share investing? Not necessarily. Sure, we do things faster but that doesn't necessaily translate to building wealth faster. Compouond interest still requires time to work - you can't really speed that up, regardless of the number of iPhones released in the space of 5 years...

Frequent Contributor

Some of the observations about people living longer remind me why healthcare is not a bad place to be - one of the few services where the demand goes up!  ( Yes one must not forget reulatory pressure and what you are paying - but still...) 

PS I think the 85 yo would have been better off buying a volvo... but that is a personal view on its safety.   

 

Valued Contributor

health care, yip. Did a bunch of research re aging population but also reducing population (we are more or less at peak population). In both cases health care comes out tops, but legislative remaisn my concern and euipment manufacturers erhaps least impacted by gov laws trying to reduce the costs?

 

At mon, at 85 you buy a racer as you ave little downside. So what if you smash it and you, and spend the money before you gone ..