The horizon can tell us quite a bit about what’s coming. On a warm summer night, you can look out at the horizon to see if a storm is brewing and when you’re behind the wheel, you can keep your eyes on the horizon for signs of trouble.
But we can also benefit from a time horizon in which we set a financial goal on the distant horizon and then craft a financial strategy that keeps our eyes firmly fixed on that point.
As we head toward our financial horizon, we can make strategy adjustments designed to help keep us moving forward with precision and confidence.
What is a time horizon?
Specific time horizons are generally built around your goals. For example, if you want to save enough money for the down payment on your first home within the next few years, that would be a short-term horizon. If you have a new baby on the way and want to begin saving for their college education, that would be a medium-term time horizon.
And, if you’re relatively early in your career but want to begin saving now for retirement, that would be a long-term time horizon.
The longer the time horizon, the more aggressive you and your financial services professional may want to be because you have time to ride out peaks and valleys.
If you need a shorter time horizon, you and your financial services professional will likely want to play things more conservatively by embracing options that come with less risk. Let’s next look at what the rate hike may mean for homeowners.
A short-term horizon is generally built around investments that you expect to last five years or less. These are investments often geared toward folks who are nearing retirement and who may need a significant chunk of money sooner rather than later.
Money market funds, savings accounts, certificates of deposit and short-term bonds are options for short-term investments because you can easily liquidate them into cash.
A medium-term horizon includes investments you intend to hold on to for roughly three years to a decade. Think saving for college, a wedding, or a first home. As you’ve probably guessed, medium-term investments seek to find a happy medium between high and low-risk assets.
A medium-term horizon may include a combination of investments that seek to help maintain your wealth without losing value because of inflation.
A long-term horizon consists of investments that you’ll want to hold for 10 to 20 years, and potentially even longer than that.
With the long-term horizon, the goal is usually to help you build for retirement. If you have a number of years before you reach that marker, you and your financial services professional can determine if have enough runway to be strategically more aggressive.
Ultimately, a horizon can serve as your guide as you choose what kind of investment products fit your needs and goals.https://www.investopedia.com/terms/t/timehorizon.asp