What Is Time Horizon? Meaning & Example
Definition
Your time horizon is how long you expect to hold an investment before you need the money. Longer horizons generally allow for more risk because there is time to recover from downturns.
Related terms
Risk tolerance is how much investment loss and volatility you are willing and able to accept. It depends on your finances, goals and emotional comfort.
Asset AllocationAsset allocation is how you divide your portfolio among asset classes such as stocks, bonds and cash. It is one of the biggest drivers of both risk and long-term returns.
Compound InterestCompound interest is interest earned on both your original money and the interest already added to it. Over long periods it can make savings grow much faster than simple interest.
What is Time Horizon?
Your time horizon is how long you expect to hold an investment before you need the money. Longer horizons generally allow for more risk because there is time to recover from downturns.
Can you give an example of Time Horizon?
Money for a house purchase in two years has a short time horizon, while retirement savings for a 30-year-old has a long one.