Investing is a longer-term strategy to reach financial goals and investment timeframes are correlated directly with your risk profile. Your risk profile alludes to how much volatility you can handle as an investor.

Those with more conservative risk profiles seek less volatility and as such, someone with a higher risk tolerance is more willing and able to take on greater levels of volatility (or risk). It is important to bear in mind that your personal risk profile does not always correlate with your investment risk profile, but rather should correlate with your investment timeframe.

For example, if you are saving to purchase an asset in the short term (within a year or two), such as nearing the end of a savings goal for a house deposit, you would have less time to experience volatility such as a drop in the market. Then, your investment timeframe is shortened, and you may accept a lower risk profile.

The inverse holds true for those with a longer investment time frame, such as in the case of a long-term savings goal of purchasing a property, saving for retirement or other goals beyond the timespan of 5+ years. A plethora of factors, including social, economic and political factors, all could impact the way the market moves; it is unpredictable in nature, and often even top fund managers aren’t able to predict the market. As such, we go back to the age-old saying time in the market > timing the market.

Research has consistently shown why timing the market doesn’t work (in the words of InvestSMART CEO, Ron Hodge) and concludes that those who are invested over the long-term in a well-diversified portfolio will generally perform better than those who attempt to predict when and where the market is going to move.

However, timeframes are just a suggestion and it is ultimately your decision if you would like to withdraw funds before the time has elapsed.