Time horizon
Also called: investment horizon
How long until you need the money you are investing. It decides how much short-term risk that money can sensibly carry.
Money needed soon has no time to recover from a fall, so it belongs in safe, easy-to-reach places. Money for goals many years away can carry investments whose prices swing, because there is more time for a fall to recover.
A long horizon makes short-term falls easier to live with. It does not remove risk: some investments never recover.
Example
Fees due in eight months have a short horizon; retirement savings for someone aged 25 have a very long one.
Learn more in these lessons
- Risk, return, liquidity and time horizonWhy do higher returns come with higher risk?
- Investment goals and time horizonsHow do you set investment goals and match them to the right investments?
- Risk tolerance and risk capacityHow much investment risk should you take?
Related terms
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