An investment time horizon, or just time horizon, is the period of time one expects to hold an investment until they need the money back. Time horizons are largely dictated by investment goals and strategies. For example, saving for a down payment on a house, for maybe two years, would be considered a short-term time horizon, while saving for college would be a medium-term time horizon, and investing for retirement, a long-term time horizon.
KEY TAKEAWAYS
Time horizons are periods where investments are held until they are needed.
Time horizons vary according to the investment goal, short or long.
Time horizons also vary according to the time by which you begin investing.
The longer the time horizon, the longer the power of compounding has to work.
Generally speaking, the longer the time horizon, the more aggressive an investor can be in their portfolio, and vice versa.An investment time horizon is the time period where one expects to hold an investment for a specific goal. Investments are generally broken down into two main categories: stocks (riskier) and bonds (less risky). The longer the time horizon, the more aggressive, or riskier, a portfolio an investor can build. The shorter the time horizon, the more conservative, or less risky, the portfolio the investor may want to adopt.