Investment Horizon
The length of time an investor plans to hold assets before needing to liquidate them to meet a financial goal.
What is Investment Horizon?
An investment horizon is the length of time an investor expects to hold a particular investment or maintain a portfolio strategy before needing to liquidate assets to meet a financial goal. Time horizon is one of the most important determinants of portfolio construction: longer horizons allow greater exposure to higher-risk, higher-return assets such as equities because there is more time to recover from short-term losses, while shorter horizons demand more conservative, capital-preserving allocations. Investment horizons are broadly classified as short-term (under 3 years), medium-term (3–10 years), or long-term (over 10 years), and they shift as the investor ages or financial goals change.
Example
A 30-year-old saving for retirement at age 65 has a 35-year investment horizon, which historically supports a high equity allocation (80–100%) because short-term market downturns have ample time to recover. By contrast, a 64-year-old planning to retire in one year should hold a predominantly conservative portfolio to protect against a sequence-of-returns shock.