David Riedel, whom I picked on a while ago in a book review, just made a comment in response to Mark Haines that is potentially very dangerous.

Mark asked about buying emerging stocks if you have a five to ten year time horizon. Riedel said “oh I think you should be very heavy stocks if you have a five to ten year horizon.”

A rule of thumb, with a child’s college fund as an example; when the child gets to about 13 you should be cutting back a lot on equity exposure.

If someone tells me they need the money in five years I would tell them to be quite light in equities. The odds of a 20% decline occurring within a five year period are pretty good. If it is a fast one like 1998 then there would be no problem but if it was a slow one like 2000-2002 there would be a big problem.

To be fair I think the question was not framed well. In this context, ten years is different than five years. But, again, if you need the money in five years you do not want to go heavy equities.

This is different than starting to draw on a pool of money than needs to last for several decades.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009