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Define Your Time Horizon
from InvestmentCare.com
As an investor, establishing your individual time horizon becomes very important because it will assist you in determining how long you plan on maintaining a particular investment. Once you have decided your time horizon, you can then determine the level of risk, and the type(s) of investment products that best suit your individual needs, investment objectives, and overall financial status. In addition to these criteria, it is also important to note that time horizons often differ depending on an investor's age. For example, a young college student might have a very different time horizon than a retiree, which may be a determining factor in deciding which type of investment products each person chooses. Although there are several different categories for time horizons, the following is a list of the three (3) most frequently used time horizons as they relate to investing:
Long-Term
Long-term time horizons are generally for those investors who have a minimum of thirty years or more to invest in the market. These investors are typically young investors such as high school students, college students, and young professionals who have several years before retirement age. Although each person is different in their individual investment objectives, net worth, and financial status, investors who have long-term time horizons are able to withstand higher levels of risk, which tend to produce higher market returns over time. Because of the long-term time horizon, investors are able to focus or "weight" their portfolio with more aggressive, growth-oriented investment products for the hope of greater returns in the future.
Medium-Term
Medium-term time horizons generally apply to middle-age investors, typically in their 40's and 50's, who are of the Baby Boomer Generation. This type of investor has had several years to invest in the market and sustain a certain element of risk and corresponding market return. However, they are now faced with the decision to shift their current investment strategy to a more balanced and/or conservative approach because of the approach of retirement age. Although each individual situation is different, investors who have a medium-term time horizon may consider balancing their portfolio with an even amount of conservative, growth, and income-oriented investment products for the future.
Short-Term
Short-term time horizons generally apply to those investors who are of pre-retiree and retiree status. Because most of these investors may experience a fixed or limited income in the near future, emphasis is placed on safety and income. Although each individual situation is different, investors who have short-term time horizons are generally the least tolerant of investment risk and are more concerned with preserving their existing capital and income. Because of the short-term time horizon, investors in this category may consider concentrating or "weighting" their portfolio with conservative, income-oriented investment products for the minimization of risk and the preservation of income
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