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Understanding investment time horizons

Investment time horizons will vary depending on where you are in your investing journey, your strategy and typically, your age. These timelines are not necessarily fixed, and horizons may evolve over time with changing market conditions, retirement and tax rules, and your goals. 

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Short-term investment horizon

Short-term investing is any holding period up to five years. These investments wouldn’t be appropriate for higher risk assets like stocks, as immediate market downturn could derail your progress towards a short-term goal without giving your portfolio the necessary time to recover. 

Lower-risk investments like short-term bonds, money market funds, or high interest savings accounts allow you to focus on capital preservation, and aim to outpace inflation, without the potential for big price swings. These might be suitable for investors who need easy access to their cash, such as those approaching retirement. 

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Medium-term investment horizon

Medium-term investing is any holding period up to ten years. These investments have some time to ride out the ups and downs of the market and potentially benefit from compounding returns. 

A balanced allocation between higher risk assets like stocks and funds, and lower risk assets like bonds and money market funds can offer some protection whilst aiming to outperform inflation and generate some growth. Investors could tailor their approach to a more aggressive or defensive strategy based on their risk tolerance and goals. 
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Read our full guide on aggressive and defensive investing strategies. 

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Long-term investment horizon

Long-term investing is any holding period of more than ten years. These investments have the most time to ride out the ups and downs of the markets, so investors may want to consider a higher portion of equities in their portfolio to take advantage of this. 

Goals associated with long-term investments are typically retirement or setting money aside for your family to inherit. You aren’t just putting money away, you’re planting a seed for the long-term, on the belief that the global economy will grow over a long period of time. 

Read our full guide on retirement and long-term investing. 

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How to plan your investment goals

Aligning your investment horizon with your goals, risk tolerance and capacity for loss is essential; and not doing so could be costly. For example, trying to build your entire retirement fund in five years isn’t likely to be successful, and going all in on higher-risk assets might leave you overexposed to risk, and potentially worse off than you’d be if you just focused on preserving capital.

It might feel tempting to speculate when markets are moving in a positive direction, but the ‘fear of missing out’ on a good stock market rally often kicks in before a market bubble is about to burst. So, make a plan for each investment and stick to it — making too many decisions can be a costly mistake for investors trying to reach a specific goal. 

See our full guide on behavioural investing and common mistakes.

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Investment time horizon summary

Short-term goals (under 5 years) prioritise capital preservation, favouring lower-risk assets like bonds and savings accounts. Medium-term horizons (up to 10 years) allow for a balanced approach, mixing stocks and bonds to achieve growth while managing risk. For long-term goals (10+ years), such as retirement, investors might take on more risk with a higher allocation to equities, allowing maximum time for growth and to recover from any market downturns.

Aligning your goals, risk tolerance and capacity for loss with the correct time horizon can potentially prevent costly mistakes — like taking on too much risk for a short-term need or being too conservative for long-term growth.

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When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than your original investment. Chip does not offer financial advice and this should not be considered as a personal recommendation.