What is meant by 'investment horizon'?

The term 'investment horizon' specifically refers to the timeframe an investor plans to hold an investment before needing to access the funds or achieve their financial goals. Understanding the investment horizon is crucial for investors as it influences their asset selection, risk tolerance, and investment strategy. Different horizons can lead to different investment choices; for instance, long-term investors may opt for equities, which tend to be more volatile in the short term but may yield higher returns over time, while short-term investors might favor more stable investments like bonds or cash equivalents to minimize risk.

By clearly defining the investment horizon, investors can make decisions that align with their financial goals and risk appetite, taking into consideration their liquidity needs and market conditions over time.