Investment Horizon

DEFINITION of 'Investment Horizon'

The total length of time that an investor expects to hold a security or portfolio. The investment horizon is used to determine the investor's income needs and desired risk exposure, which is then used to aid in security selection.

BREAKING DOWN 'Investment Horizon'

As investment horizons increase in length, equities represent a higher risk-adjusted return than fixed-income securities and cash. Across shorter investment horizons, equities become the riskier asset class because they carry higher levels of volatility.

For example, a young professional with a 401(k) plan should be mostly invested in equities because this person's time horizon could be 30 years or more. For someone nearing retirement, however, preservation of capital becomes much more important, so fixed-income investments become more attractive.

Some trading strategies, especially those based on technical analysis, can employ investment horizons of days, hours or even minutes.

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