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Following Distance - Part 4

Why you need to invest according to your needs

Matching assets and liabilities is a measure used by actuaries to ensure a Pension Fund can pay its liabilities. Similarly, when you retire, a wealth manager needs to ensure that there is sufficient liquidity so that your investments can fund your expenses.

We want to be certain that we never fund expenses from investments that are suffering during a market downturn. For this reason, close attention is paid to the timing of your cash flow needs – the potential time horizon it can take a portfolio to recover from a downturn and beat inflation.

Whilst inflation is not of immediate concern over the short term, it does become a very big consideration over the long term. Conversely, volatility should be avoided over the short term and embraced over the long term. After all, volatile investments offer you reasonable returns above inflation, without which you would not be able to maintain your purchasing power.

The amount of money held in less volatile investments is termed “following distance” and is used to fund cash flow needs in the short term. Following distance means that timing the market is not necessary and ensures peace of mind for both the client and the wealth manager.


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