Time Horizon

Time horizon determines the level of risk you can take in your portfolio. Discover how to align it with your goals and manage your funds with Index Balance.

Definition

The investment time horizon is the period of time over which an investor plans to hold their portfolio before needing the money. It is one of the most determining factors when choosing an investment strategy: investing for 2 years from now is very different from investing for retirement 30 years away. The time horizon directly influences the level of risk the investor can afford to take.

For the index fund investor, a long horizon (more than 10 years) is the condition that most favours investing in global equities. Historically, there has been no 20-year period in which the MSCI World index has ended in negative territory. In the short term, the stock market can fall 50%; over the long term, the probability of a positive return approaches 100%. This is why time in the market is more valuable than trying to time the market.

Index Balance lets you define your time horizon per portfolio and receive analysis tailored to your situation. Try it free at indexbalance.com.

Practical example

You are 35 and plan to retire at 65, giving you a 30-year horizon. A 90% equities / 10% bonds portfolio would be appropriate: although it might fall 40% in some years, you have more than enough time to recover. If, by contrast, you needed that money in 3 years to buy a house, such a volatile portfolio would be a mistake: you might have to sell at the bottom of a crash. Index Balance calculates this automatically every time you update your portfolio.