Your time horizon is the length of time chosen until you plan to access all or most of the funds you’ve invested. A critical part of your investment strategy, your time horizon helps ensure your money is there when you need it.
If you have a very short time horizon, you need primarily very secure investments, like cash or money market funds. The longer your time horizon, the more you can incorporate growth-oriented investments such as equities and equity funds into your portfolio, depending on your tolerance for risk. (Use the investor profile calculator to learn what kind of portfolio matches your investment personality.)
It’s not always easy to stay focused on your time horizon. For example, when markets are declining, an investor with a 20-year time horizon may still feel anxious, even though 20 years may be more than enough time for the equities in their portfolio to recover and go on to new highs.
Working with a professional financial advisor is one way to help you avoid overreacting to short-term events.
Multiple time horizons
In most cases, an investor will have multiple goals with multiple time horizons at any given time. For example, you may have a Registered Retirement Savings Plan (RRSP) with a 30-year horizon, a Registered Education Savings Plan (RESP) for a child currently in grade school, and an open non-registered account for an upcoming vacation.
During retirement, you may even have multiple time horizons. You’ll need some short-term, lower-risk investments to generate income as well as longer-term, higher-risk investments designed to provide growth and keep you ahead of inflation.
Sometimes, when your goals change, your time horizons may change too. To invest with peace of mind, speak with your advisor. They’ll help ensure that any changes in your life are reflected in your investment strategy.