Are you in it for the long term?

The purpose of wealth, however large or small, is to fund expenditure in the future. This might be tomorrow or it might be in 40 years’ time, but the time horizon for most investment objectives cannot be described as short term. For long-term investors who are concerned to target a minimum standard of living, or, for an endowment, a minimum level of disbursements, the strategy should not target a particular level of wealth. Wealth is a means to an end, but not the end in itself. The sufficiency of wealth is best examined from the perspective of the level of income that the wealth can support.

Time horizon for private and institutional wealth

The income that a defined-benefit pension fund or an insurance company is obliged to disburse can be modelled years in advance with a reasonable degree of accuracy by actuaries. There are issues with the uncertainty surrounding these projections and whether this has increased with corporate change and with greater life expectancy. But these issues are of an order of magnitude different from the uncertainty surrounding the spending of much private wealth.