What is meant by "investment horizon"?

"Investment horizon" refers to the length of time an investor expects to hold an investment before needing to access the funds. This concept is critical in investment strategy because it influences the types of investments one might choose. For instance, an investor with a long investment horizon can afford to take on more risk because they have time to recover from potential losses, while someone with a short investment horizon might prefer more stable, less volatile investments to ensure that they can access their money when needed.

Understanding one's investment horizon helps investors align their financial goals and risk tolerance with appropriate investment choices. This can shape decisions regarding asset allocation and the selection of specific investment vehicles, whether they involve stocks, bonds, or other securities.