If you invest in the stock market, that’s really the shortest time horizon you should have. In other words, if there’s a realistic chance you will need the money in less than 10 years, you should put it in cash or bonds, not stocks.
The stock market’s terrible start to 2016 has many people worried. But if you don’t need the money for a decade, you have time for the market to recover.
Admittedly, there’s no magic to the number “10”. I use it because, for the past 90 years, there have been only four Jan-Dec periods when the US stock market had a negative 10-year return. So, history suggests you are very likely to make money over 10 years. By contrast, over the past 90 years, you had a 30% chance of losing money in any given year.
Admittedly also, it’s probable you can spend some of the money a lot sooner than 10 years after investing. On average, the stock market goes up. When it does, selling stock can be a logical source of cash.
If you focus on when you will actually need the money, it’s easier to figure out just how much stock to own, relative to bonds and cash.
And it’s easier to ignore the volatility.