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Time Horizon

In short

How long you plan to stay invested — longer horizons support more risk

Investing for 30 years? You can weather market crashes because you have time to recover. Investing for 3 years? You need safer investments because a crash could derail your goals. Time horizon is the single biggest factor in portfolio design.

Time horizon defines the investment period and appropriate risk levels. Long-horizon investors (20+ years) can hold mostly equities and recover from bear markets. Short-horizon investors need capital preservation. The S&P 500 has never lost money over any 20-year rolling period.

Related concepts

  • Risk Tolerance — Risk tolerance is how well you can sleep when your portfolio drops 30%. Some investors can stay the course; others panic-sell. High risk tolerance = more stocks. Low risk tolerance = more bonds and defensive assets.
  • Asset Allocation — Asset allocation is how you divide your money between different types of investments. A classic '60/40' portfolio is 60% stocks, 40% bonds. It's the most important decision in investing — determines most of your long-term returns and risk.
  • Compounding — If you earn 10% on $1,000, you have $1,100. Next year, you earn 10% on $1,100 = $110. Over 30 years, $1,000 becomes $17,449. Einstein called compounding the 'eighth wonder of the world.' Time is your greatest advantage.
  • Rebalancing — Rebalancing forces you to sell what's risen (expensive) and buy what's fallen (cheap) to restore your target mix. It's systematic discipline — the opposite of the emotional tendency to chase winners.