My employer has generously given our lab the day off to celebrate some of our recent successes, giving me a four-day weekend. What a precious gift — time. Time to relax and see a concert, time to clean the house, time to blog at balhiser.com. This gift off one day plus the Labor Day Weekend got me thinking about time and investing and how the two relate.
Time is a critical factor in investing. Interest and dividends are paid out over time. Inflation adds up over time, as does compounding. Annuities pay out over a lifetime. And, of course, pundits debate whether it is worth it to try to time the markets.
Time shows up in just about every financial formula, starting with the basic time value of money computations.
And, naturally, savings accumulates (or debts) over a period of time.
Putting this all together time is generally on your side as an investor. Especially if you are in your 20’s, 30’s, 40’s or even 50’s and investing in retirement. Having a 20-year plus time horizon is very likely to help smooth out the huge market ups and downs.
The biggest gotcha about time is inflation. Certainly inflation is my greatest concern. A dollar today is not worth what it was 10 years ago. I paid $1.00 for a Hershey Bar this week. 10 years ago I could have bought 2 for $1.oo. The other big gotcha about time is uncertainty. What will taxes be for IRA and 401(k) withdrawals? What will the economy look like? Will I have a job and will my pay keep up with inflation and taxes?
That said, I still believe time is on the side of long-term investors. Tax-deferred compounding of IRA and 401(k) assets is very helpful. The tax deferral of unrealized capital gains in taxable accounts is another investing boon. Finally the tax-free advantages of Roth IRA and 401K assets is another helpful option to help leverage the power of time.
Enough about that. A quick Crazy Ivan Account update: $21,750. Nice appreciation of late. Even my Barclays ADR (BCS) is up from the initial purchase price. Quite wild ride on the banks. The covered call I sold on SPY is in the red, but the 100 shares of SPY are in the black by more. That how covered calls generally work out — smoothing the volatility out of both the ups and the downs.