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How Investment Horizon Affects Your Investment Portfolio?

2021 Sep 9

All investors have an investment horizon, which is the amount of time that they're willing to keep their money on the market. In layman's terms, it measures how long one is willing to wait before selling one's securities. An investment horizon will also determine what kind of portfolio one should have: whether it's a high-risk or conservative one.  
Those who are looking at a horizon of three years at most may consider investments that offer low risk and high returns. These include high-interest savings accounts and investing in certificates of time deposit. They guarantee immediate returns without much risk of loss. The great thing about a short-term horizon is that it will allow investors a higher rate of liquidity – meaning, they get more cash quickly. 
Those who are willing to let their money sit on the market for up to ten years may consider investing in a mix of stocks and bonds. The recommended formula is 30% stocks and 70% bonds. For those who are not familiar with the difference between stocks and bonds, here's a quick explanation: stocks are the shares that form part of the capital of a company, while bonds are the loans that investors give out to corporations and governments. Investors earn from stocks through selling their shares for a higher price or through dividends, if the company earns. As for bonds, investors are paid the interest on the loan.
There are investments with a longer horizon. But, there is more risk with this kind of investment and it is recommended only for risk-takers who are willing to wait for at least ten years before getting lucrative returns. 
There is always risk in any investment that one might choose to make. With savings deposits, there could be the risk of fraud; it may be highly unlikely, but it does happen. With regard to stocks, if the company invested in does not make profits or closes down, there will be minimal to zero pay-outs. As for bonds, if the principal amount is not paid back, then the investors won't get their full return on investment.
So, for managing one's investment portfolio, it's important to have an investment horizon in mind. 

All investors have an investment horizon, which is the amount of time that they're willing to keep their money on the market. In layman's terms, it measures how long one is willing to wait before selling one's securities. An investment horizon will also determine what kind of portfolio one should have: whether it's a high-risk or conservative one.  

Those who are looking at a horizon of three years at most may consider investments that offer low risk and high returns. These include high-interest savings accounts and investing in certificates of time deposit. They guarantee immediate returns without much risk of loss. The great thing about a short-term horizon is that it will allow investors a higher rate of liquidity – meaning, they get more cash quickly. 

Those who are willing to let their money sit on the market for up to ten years may consider investing in a mix of stocks and bonds. The recommended formula is 30% stocks and 70% bonds. For those who are not familiar with the difference between stocks and bonds, here's a quick explanation: stocks are the shares that form part of the capital of a company, while bonds are the loans that investors give out to corporations and governments. Investors earn from stocks through selling their shares for a higher price or through dividends, if the company earns. As for bonds, investors are paid the interest on the loan.

There are investments with a longer horizon. But, there is more risk with this kind of investment and it is recommended only for risk-takers who are willing to wait for at least ten years before getting lucrative returns. 

There is always risk in any investment that one might choose to make. With savings deposits, there could be the risk of fraud; it may be highly unlikely, but it does happen. With regard to stocks, if the company invested in does not make profits or closes down, there will be minimal to zero pay-outs. As for bonds, if the principal amount is not paid back, then the investors won't get their full return on investment.

So, for managing one's investment portfolio, it's important to have an investment horizon in mind. 

 





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