Glossary
Time Horizon
How long money can stay invested before it is needed, which changes what a given amount of movement in a price means.
A horizon is a date rather than a feeling. Money set aside for a deposit next spring and money that will not be touched for twenty years are in different situations even when they are invested in exactly the same thing, because only one of them has to be turned back into cash on a particular day.
That is why the course treats the horizon as part of the risk rather than as something sitting beside it. A fall of thirty percent is a number on a screen to somebody who is not selling, and a realized loss to somebody who has to sell that month. The price movement is identical in both cases. What differs is the deadline attached to the money.
It is also one of the few things about a reader that the assistant is allowed to raise. Saying that somebody's own time horizon is worth considering is a general suitability point rather than a directional call, so it falls on the education side of the line the compliance layer draws, while naming a holding period for a particular person would not.
Learn this properly
Lesson 5: Risk, in the Language You Already UseWhat you can actually lose, why volatility and loss are not the same word, and diversification without the lecture.
Related terms
- VolatilityHow much a price moves around over a period, in either direction, measured as the size of the swings rather than the destination.
- DiversificationSpreading money across different investments so that no single one determines the whole result.
- RecessionA broad, sustained contraction in economic activity, dated in the United States by a committee of economists after the fact.
- CompoundingGrowth calculated on a total that already includes earlier growth, so each period's gain joins the base for the next one.
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