Time horizon

An investor’s time horizon is the length of time over which he wishes to hold an investment portfolio. It is the first factor in the portfolio management process along with the identification of personal financial objectives. An investor’s time horizon will largely depend on his individual objectives, his income needs and desired risk exposure, which will then be used to help in the asset allocation and security selection process.

For example, over longer time horizons, equities may offer a higher risk-adjusted return than bonds or cash. However, over shorter horizons, equities are considered the riskier asset class owing to their high level of volatility. Thus the choice to allocate a larger portion of an investor’s portfolio to equities or fixed income and cash investments, will depend on the investor’s time horizon.