What does "investment horizon" mean?

The term "investment horizon" refers to the total length of time an investor expects to hold an investment before needing to access the funds or liquidate the position. This concept is crucial because it influences investment choices, risk tolerance, and the types of investment vehicles one might consider. For example, a longer investment horizon may allow an investor to weather market volatility, making stock investments more appealing despite their short-term fluctuations. Conversely, a shorter investment horizon often leads to a preference for more stable and less volatile investments that may provide quicker access to cash or returns.

The significance of understanding one's investment horizon cannot be overstated, as it helps guide decisions on asset allocation, risk management, and rebalancing strategies in an investment portfolio.