Investment Horizon

What is 'Investment Horizon'

Investment horizon is 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.

RELATED TERMS
  1. Long-Term Growth - LTG

    An investing strategy or concept where a security will appreciate ...
  2. Medium Term

    An asset holding period or investment horizon that is intermediate ...
  3. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment ...
  4. Conservative Investing

    An investing strategy that seeks to preserve an investment portfolio's ...
  5. Aggressive Investment Strategy

    A portfolio management strategy that attempts to maximize returns ...
  6. Position Trader

    A type of stock trader who holds a position for the long term ...
Related Articles
  1. Investing

    Understanding Risk And Time Horizon

    The interaction between your risks and your time horizon influences every investment decision you make, whether you know it or not. Learn the basics here.
  2. Investing Basics

    Redefining Investor Risk

    Changing the way you think about time and risk can change the way you invest.
  3. Stock Analysis

    Simpler Looks Better For First Horizon

    Deprioritizing non-strategic lending and refocusing on regional banking should be good for First Horizon in the long-term.
  4. Bonds & Fixed Income

    Safety and Income: Safety, Income and the Optimal Portfolio

    By Brian PerryWhen constructing a portfolio, the primary consideration is to build the portfolio that is most likely to help an investor achieve his or her financial goals. This optimal portfolio ...
  5. Options & Futures

    Investing 101: Portfolios And Diversification

    It's good to clarify how securities are different from each other, but it's even more important to understand how their different characteristics can work together to accomplish an objective. ...
  6. Retirement

    5 Ways New Investors Can Reduce Stress

    Learn five ways to reduce stress prior to investing, involving budgeting, diversification and risk tolerance.
  7. Investing News

    Using Time Horizons In Investing

    Time-horizon investing is all about planning. You need to think about your goals and select investments based on the amount of time you have until the goal must be funded.
  8. Investing Basics

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation.
  9. Investing Basics

    Determining Risk And The Risk Pyramid

    Many investors do not understand how to determine the risk level their individual portfolios should bear.
  10. Retirement

    5 Steps To A Retirement Plan

    These considerations will help you make a realistic and thorough retirement plan.
RELATED FAQS
  1. I have a 24 month time horizon. Where can I invest my money?

    I am seeking moderate length investments for a down payment for a home. With global market uncertainty and the high volatility ... Read Answer >>
  2. How do I find out my own risk tolerance?

    Learn why risking capital can be risky business, how much risk can you afford and how to determine the right amount of risk ... Read Answer >>
  3. What rate of return should I expect on my 401(k)?

    Learn what factors affect your 401(k) performance, and understand what a typical rate of return is for employer-sponsored ... Read Answer >>
  4. What are the main disadvantages of fixed income securities?

    Learn why fixed-income securities, despite offering the luxury of guaranteed, regular cash payments, confer several disadvantages ... Read Answer >>
  5. Over what time period should I be looking at the forward rate?

    Read about forward rates and forward prices, how they function, and which rates you should look at based on your own investment ... Read Answer >>
  6. Which is more important - dividend yield or total return?

    Learn to distinguish between those times when dividend yield or total return is a more useful performance metric for a company's ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center