In Marathi there is an old saying which goes something like this – दात आहेत तर चणे नाहीत, चणे आहेत तर दात नाहीत – Roughly translated, it represents a story of misfortune – “When you have teeth, there is no food, by the time you can afford food, your teeth have fallen off!”

But that saying is also the story of many “Investors” who, despite all the best intentions and efforts find themselves in exactly this sort of a situation. They don’t have the money when they need it and when they have the money, they don’t know what to do with it.

Clearly this is a case of bad timing!

It’s therefore absolutely crucial that you get your timing right for everything you do with your money – save, invest, spend! You have to invest at the right time and cash your investments at the right time.

BUT

Every self-respecting and honest financial professional you may have already met or will meet in the future would have told or will be very emphatic in telling you – “Timing the investments in the stock as well as bond markets” DOES NOT WORK! It’s a folly to try and do so.

They are absolutely right!

However, notwithstanding the prudence of that advice, you still have to get your timing right, otherwise you could land up on your knees even if you have sufficient and more assets to your name!

That’s exactly what happened to my friend a couple of years ago. His net worth is considerable. He had invested it “wisely” (or so he thought) so that he can live out the rest of his retired life in comfort, even in some extravagance. And that’s how things panned out for several years until the Covid pandemic hit!

His primary source of income was the rent he used to get from four shops which he had leased out. When the lock down closed the shops, and there was no indication of when it would be lifted, ALL four of his tenants (whose business had shutdown) terminated their leases and walked away. Almost overnight his income stream dried up completely. But just staying alive is expensive business – your lifestyle has to be propped up by an appropriate amount of cash! Fortunately, he had a strong enough support system of his family which he could bank on to tide over the difficult times.

But clearly, there was a flaw in his strategy – there was a timing mismatch. Despite his considerable assets, he couldn’t have his money when he needed it the most.

So, what do I mean when I say that the “Pundits are right – and you should never time the market” and in the same breath also say – “You must invest at the right time and cash your investments at the right time”?

The “correctness” of the timing – to invest or to divest – thus has to be dictated by events which happen in and affect your life and not events which happen on the stock markets or the bond markets or in any market for that matter! The timing that must match as closely as possible is – the time when a need for money arises and the time when your investments can deliver the required amount!

So, if your needs are short-term but your investments are illiquid in the short term, then regardless of how high a return they generate for you in the long term, they are useless for you. On the other hand, if your needs are long term but your investments are designed to provide liquidity in the short term then, in all probability you are giving up opportunities to grow your assets over time.

My friend whose story I narrated earlier thought he had addressed this timing problem very well. His needs were short term – day-to-day expenses and he had created sufficient short-term liquidity by way of the rental income. Or so it seemed, until something nobody had anticipated happened and wiped out his short-term liquidity! His assets, even though of considerable value, were incapable of replacing that lost income in any other way in the short term as there were no takers for the properties!

And it’s not just ordinary folks like us but even large corporations with billions of dollars in assets either miscalculate or do not consider it important to match needs and investment timeframes or are too greedy to make that extra few basis points of returns and ignore the risks. And the consequences can be catastrophic. The recent collapse of the Silicon Valley Bank (SVB) amply illustrated this timing mismatch. The key issue SVB faced – it’s needs (obligations towards depositors) were short term but the assets it owned (long term government bonds) had maturity timeframes far longer than their obligations timeframes. As a result, SVB faced a Hobson’s choice, either engage in a distress sale of their assets at a great loss OR default on their obligations when depositors began withdrawing funds. Even a well-funded profitable bank, with a strong balance sheet (in theory) and super safe investments was brought to its knees in no time.

That’s why addressing the timing mismatch of your investment strategy is so crucial!

But how?

The best investment wisdom I was ever given (as far as the correct “timing”, is concerned) was:

“The correct time to invest is when you have the cash” and “The correct time to divest is when you need the cash”!

However, for this to work, a lot of groundwork needs to happen to define the needs – “WHEN and HOW MUCH” and determining the right investments which will meet those needs – “THEN and THAT MUCH” – while never forgetting the story of my friend who didn’t take into account that every strategy how-so-ever clever needs a backup plan and perhaps a backup to a backup plan, should something happen to throw even the most cleverly matched timing of needs and investment out of kilter!