Fin320- taxes, inflation – investors and investment “taxes,
Knowing one’s investment horizon can help with one’s investment strategy in two primary ways. Firstly, by understanding the timeline for when funds will be used it is easier to determine how much risk can be taken on versus how much should be avoided. For example, if an investor has a short-term horizon then they may opt for more conservative investments such as fixed income or cash equivalents rather than risky equities which could provide larger returns but are also subject to greater volatility.
The second way that knowing one’s investment horizon can assist with their strategy is that it allows them to adjust their goals accordingly. For instance, if an individual has a longer time frame they may be able to take more risks in order to maximize potential gains while still giving themselves enough time to recover from any losses incurred along the way. On the other hand, someone with a shorter window of opportunity would need to focus more on preserving capital and not taking excessive chances—something which becomes easier when you have clear objectives laid out beforehand.