Time Horizon

Posted in Finance, Accounting and Economics Terms, Total Reads: 427
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Definition: Time Horizon

Time horizon is defined as the length of time the investment is going to be held or made before it is liquidated. At the end of time horizon the investment is evaluated for performance and can also be compared to other investment opportunities with same time horizon for return on investment.


Time Horizons may be al long decades or years and as small as a few seconds. For example- a day trader bets on the market volatility in fraction of seconds while a buy and hold investors holds an investments for decades. However, theoretically there is no right or wrong time horizon for investment; it usually depends on investor’s individual perspective.


Though there is no rule as such regarding the timelines appropriate for various investments but there are certain guidelines which help an investor to decide which instrument to invest in. For example – Volatility poses a greater threat in short term than in long term. Hence an investor who is investing for say 30 years will not be much affected by market volatility as he has 30 years to recover from the loss. However an investor who is investing for say 1 year for down payment on a house will be severely affect by market movement because it is a very short time frame for him to recover the losses.

 

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