Time Horizon

By Greg Parsons, editor

Educational only, not financial advice.

Time horizon is the length of time between now and when an investor expects to need their money — for a spending goal, retirement, or another use.

Why it matters

• Longer time horizons generally allow for more stock exposure, since there's more time to recover from downturns.
• Shorter time horizons usually call for more conservative, stable investments to avoid being forced to sell at a loss.
• Time horizon should be reassessed periodically — it shrinks every year, and portfolios often need to adjust as it does.

Simple example

• Money needed for a house down payment in 18 months has a short time horizon and usually shouldn't be in stocks.
• Money saved for retirement in 30 years has a long time horizon and can typically absorb more short-term volatility.

How beginners use this

Longer horizons can usually accept more equity volatility. Map horizon to mix in asset allocation.

Related terms

• Risk Tolerance
• Asset Allocation

Learn more

• Risk vs Return
• Retirement Planning