30th September 2019 - Tracey Payne

How long is long term?

For many investors – particularly those in retirement – the question ‘how long is long-term?’ could also be translated as ‘I’m getting on a bit, so should I still be investing in the stock market?’.  When is comes to systematic investing – that is to say, capturing specific market risks in a disciplined and rules based manner – a subsidiary question might also be ‘should I still own value and small cap stocks, as their excess returns, relative to the market, can take some time to come through?’.   

Even at 80, when investors may begin to ask themselves the question ‘how long is long-term’ they should still consider 20 years to be a sensible horizon.  After all, according to a useful little calculator provided by the Office for National Statistics, today, an 80-year-old woman has an average life expectancy of 90, a 1-in-4 chance of reaching 94 and 1-in-10 chance of getting to 98.  Consider the following:

Answering the question

On balance, ‘long term’ should be defined as 10 to 15 years minimum.  Above 15 years, the chances of a negative purchasing power outcome are low, but the risk still exists!  To be prudent, 15 years might be considered as the lower end of ‘long term’, which is still within the investment horizon of most investors, including those in their 80s.  We hope that helps answer the question.

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[1]https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/whatismylifeexpectancyandhowmightitchange/2017-12-01

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