The myth
Your time horizon is an essential consideration when investing. That’s because how long you can keep your money in greatly affects the products you should consider and the potential returns you could have.
When it is reached, investors tend to take all the money and use it for the intended purpose. That’s why many people believe that pulling out of your investment is only a matter of time.
Yes, they think there’s no such thing as “forever.”
The reality
While it’s true that you may need all your invested money on the time horizon, remember that this depends on your goal. After all, if you want to have another source of income instead of an amount for a one-time use, you can aim for this through investing too.
For example, you could put your money in stocks that have a good history of paying out dividends, like blue chips. If you choose a Real Estate Investment Trust or REIT, you’ll have the comfort of knowing that the company is required to share at least 90% of its distributable income annually with its stockholders.
Investing for income can also be done with products that have a fixed term. If you put your money in bonds, for instance, you’ll be receiving interest (via coupons) according to the set schedule for as long as the bond hasn’t matured. At the end of the period, you’ll get your original investment back and stop getting coupons.
The predictability of these coupons in terms of amount and frequency makes bonds a good option for boosting your income. Plus, when the bond ends and you get your money back, you can reinvest it so you can again receive interest.
You might even be able to put your money in perpetual bonds. These have no maturity date, so you’ll be receiving the coupons indefinitely. The terms might differ according to the product, but the absence of a fixed term is standard for this type of bond.
The verdict: False.
If you invest for income instead of trying to reach a certain amount of money, you won’t have to pull out of your investment. This can be done by choosing products that may help you achieve that goal, namely those which provide a steady source of income.
If you aren’t in need of the extra income just yet, you can choose to invest and re-invest the dividends or coupons first in the same product or a different one with similar characteristics. That way, you’ll have more money that might earn for you by the time that the additional income becomes a big factor in your financial life, like when you retire.
Remember also that if your situation allows it, you can invest for a certain amount and for income at the same time. You’ll just need to budget carefully, set realistic goals, and ideally maintain separate portfolios for each.
