DLC Financial Advising Services

2015 1st Edition (Other Editions)

SAVINGS & INVESTMENTS TIME FRAME

When saving and/or investing money the ultimate purpose for which the dollars may be used should be kept in mind. Unfortunately, many good investments have an inappropriate time frame for the purpose for which they were acquired.

By analyzing savings and/or investing according to a specific time frame, you can determine if you are saving enough and placing savings into the right investment or savings vehicles to reach goals at the desired time. The following is an outline of the three general time frames within which to save.

SHORT-TERM SAVINGS

This is defined as money that can be turned into cash immediately or, at most, within one or two months. Savings vehicles in this area are often highly liquid and represent cash equivalents such as money market funds, bank savings accounts, life insurance cash values, U.S. Treasury Bills and bank certificates of deposit.

Because the need for these dollars may be an emergency or a short term purchase, they should be invested with very little risk of principal loss and with no substantial penalty for early withdrawal.

MEDIUM TERM INVESTMENTS

The medium term represents a time frame of one year from now until pre-retirement at age 60. This is often the longest period of time during which we will save and spend the most.

Typical goals in this area include purchasing a next home, college education for children, family vacations and other major purchases. We can invest for medium term in financial products.

However, we still may need to access the money at various points in time. Mutual funds and cash values from insurance and annuities are often the most appropriate medium term investment vehicles. Both are quickly liquid in the event of a crisis, although there may be costs on premature withdrawals.

LONG-TERM INVESTMENTS

This represents money invested essentially for retirement. Starting at age 60 to life expectancy this time frame is when we use most of the retirement money saved through, annuities and other investments that have not been used up in the medium term time frame.

Real estate is considered a long term investment, but unlike the others, it requires substantial commitments for management. If leveraged it also includes an opportunity for negative cash flow if rental income is not steady. On a long term basis, real estate has been a good performer for many people. However, it is very illiquid, requires management and can have unexpected expenses or loss of income.

TIME FRAME SUMMARY

The above represents a brief review to increase understanding of the purposes for considering the time frame of savings and investments. However, it is certainly not exclusive.