Time Horizon
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.