#SHORT TERM TIME HORIZON DEFINITION HOW TO#

Riskier financial assets may undergo more fluctuations, which makes it harder for your portfolio to recover in the short term. Generally speaking, the older you are, the shorter your time horizon.Ī shorter investment horizon means that you should be exposed to less risk. AgeĪge is the most obvious factor in determining your time horizon. The good news is, whatever your answers are, you can find a way to meet your financial goals as long as you understand your investment horizon.Īge, financial goals, and risk tolerance are major factors that influence how you would structure your portfolio, and whether you wish to lean towards the high-risk, high reward end, or stay in a relatively safe zone. What is my expected return? Am I highly averse to risk?.What is the financial purpose of this trade?.

Is this a short-term or long-term investment?.

What is your time horizon? The first step of your investing journey starts with figuring out the answer to this question.īefore you craft your portfolio, it may help to ask yourself the following questions:

#SHORT TERM TIME HORIZON DEFINITION HOW TO#

Step 2: How To Determine Your Time Horizon For different people, this ratio is different. This understanding is crucial because it helps to determine the optimal investment strategy and construct the appropriate portfolio allocation ratio.

For different investors, this time can range from a few seconds to several decades.Īny investor worth her salt would have a good understanding of the concept of time horizon. In investing, time horizon simply refers to the amount of time an investor is planning to hold a portfolio. Step 1: What is “Time Horizon” and why is it so important?īefore we begin, let us review the definition of “time horizon”. Discover also our favorite asset allocation ratio that makes up a balanced but growth-centric portfolio. Read on to discover your investment horizon and how to pick the right assets to make up your portfolio. How long is the projected future? What constitutes this future? It is these fundamental questions that are going to help you determine your time horizon, which in turn is the key to building a steady bedrock upon which your investments can flourish. Unfortunately, a brilliant long-term investment may also be a terrible short-term investment. They may rush into an investment that has huge growth potential in the long term, neglecting the fact that their projected timeline is short. This way of thinking can lead new investors to huge financial losses. After all, this is a straightforward way that may yield higher returns in the future. More alluring things like choosing the “best stocks” seem to be of the utmost importance to them. Yet, amateur investors tend to make the mistake of overlooking their time horizon when they first step into the market.

Understanding your investment time horizon is perhaps the single most helpful step to take in your investing journey.

Short term time horizon definition