GLOSSARY TERM
Time Horizon
Time horizon means how long you expect to keep your money invested before you need to use it.
What does this mean in practice?
Your time horizon affects how much risk may make sense for you. If you need the money soon, large market swings can be a bigger problem, because there may not be enough time for the investment to recover. If your time horizon is long, such as 10 years or more, you usually have more time to ride out market declines. This is why younger investors often have a longer time horizon and may be able to take more risk.
Example
Money needed for a home purchase in 2 years has a short time horizon. Money being invested for retirement in 25 years has a long time horizon.
Why it matters
Time horizon helps you choose the right investments for the goal. The longer your horizon, the more time your money has to recover from downturns and benefit from compounding.
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