Time horizon

How long before you plan to spend the money you are investing.

Example

Money for a house deposit in two years has a short time horizon; retirement savings at age 30 has a horizon of decades.

Important

Time horizon, not age or stated risk appetite, is what should decide how much volatility you can afford to take on with a given pool of money.

Related terms

  • Holding period — How long you keep an asset before selling it.
  • Sequence-of-returns risk — The risk that the order in which returns happen, not just their average, damages an outcome - especially when money is being withdrawn along the way.
  • Risk tolerance — How much decline in the value of your investments you can withstand financially and emotionally without abandoning your plan.

Lessons that explain it

  • The job bonds do: a date, a sum, and a different response to the same shock — Only fixed income lets you name the amount and the day in advance. The diversification argument is the one usually made for it, and it is the one that has failed. (8 min)
  • Certainty on a date, and the ability to act — Cash does two jobs no other holding can do: it will be there in full on a known date, and it lets you act without having to sell something first. It pays for both by losing purchasing power, reliably. (8 min)
  • Asset allocation: the decision above the holdings — How much you hold in each broad type of asset shapes your experience far more than which particular items you choose inside them - and it is the decision most people spend the least time on. (14 min)
  • The one asset with no counterparty, and the one you cannot diversify easily — Investing in skills, knowledge and health strengthens every other part of a financial life. It works best alongside savings, spread across durable and specific skills, and with health treated as the base it all rests on. (9 min)
  • What a portfolio is actually for — A portfolio is not a collection of good ideas. It is an instrument built to deliver specific amounts of money at specific times, and almost every construction question becomes answerable once that is written down. (10 min)
  • The job public equity does: growth you can sell on a Tuesday — Long-horizon growth plus daily liquidity is a combination no other class offers - and the price of the liquidity is a visible quote that invites you to use it. (10 min)

All 578 terms in the Investing glossary