Time Horizon
The expected length of time an investment will be held.
What is Time Horizon?
Time horizon is the length of time an investor expects to hold an investment or portfolio before needing the funds. It is one of the three primary determinants of investment strategy alongside risk tolerance and financial goals. Longer time horizons generally allow investors to take on more risk, since there is more time to recover from market downturns. Short-term horizons (under 5 years) typically favor more conservative allocations like bonds and cash, while long-term horizons (20+ years) can support higher equity exposure.
Example
A 30-year-old saving for retirement at 65 has a 35-year time horizon, justifying an aggressive equity-heavy portfolio. The same investor saving for a house down payment in 3 years needs a conservative allocation.