Do you ever watch World Series of Poker and count how many guys wear sunglasses? Well, I don’t. But I do notice that a lot of poker players wear them all the time to deter other players from using their body language against them. Being a savvy investor is very similar. Sometimes, you have to take a look at yourself and making an honest assessment of your situation. You might not need to know whether or not your eyes shake when you’re trying to bluff or if you sweat profusely when you play for real money, but you definitely want to make some honest assessments about who you are and where you want your investments to take you?
Do you love to travel? Do you hate waking up in the morning? If you lose a dollar at the horse tracks, do you cry yourself to sleep? A lot of these decisions are about understanding the trade-offs between your own habits and the market’s habits, and inevitably help you to understand your own investment horizon, or how long you expect to hold each investment.
Here are some basic questions to ask:
- What is my investment schedule? Am I investing for retirement? My children’s college tuitions? An upcoming trip?
- What are my options for mitigating risk? How much risk can I incur?
- How confident am I in investing my own money? Do I second-guess myself? Will I stick to the parameters in my strategies?
- How much time will I spend and how consistent can I be?
You’re trying to understand yourself so you can pick the right investment and the strategy to match. Some investments and strategies take years to work, while shorter term trading and active investing have shelf lives of just a few hours or days.
Another way to look at your investment horizon is how long you’re willing to be away from a specific pile of your money. How much time are you allowing the investment or trade to work? If it’s money you need in the immediate future, don’t put that money in long term investments that gets locked up for that investment horizon.
Understanding your investment horizon can help you find the best options that satisfy your appetite without causing you too much financial or personal stress, and inevitably will help you become a much more savvy investor.