Finance - Investment Time Horizon

Investment Time Horizon


When deciding whether or not to invest in a financial product, "risk vs reward" is not the only factor to keep in mind. You also need to consider your investment's "time horizon", or how long it will be tied up. Indirectly, this factor is related to the "risk vs reward" consideration in that the higher the risk involved, the longer the investment's time horizon should be in order to ride out any market rollercoasters with a decent chance of finishing at an increased value.

This could mean that you have to lock your funds up for a longer period than you had anticipated. Many specialist products such as Insurance Bonds, for example, normally have a minimum period of five years. Liquidity can be placed for one month and the capital can be returned after the fixed period, along with the interest.

Sovereign bonds are easily tradable and the margin of the capital gain or loss is not high. However, the purchase and sale costs make this uneconomical for such a short period.

Any product that is equity based such as a fund should be seen at least in a three to five year time frame. This allows any falls in the market to regain their value at a time when liquidity may not be required.

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