Definition of an Investment Time Horizon: A time horizon or investment time horizon is the period time for which an individual or investor expects to hold the investment until the money is needed. Investment strategies and goals largely dictate time horizons. The example for this can be the savings for a down payment on a car (maybe two-year saving), it is regarded as the short-term horizon, whereas, the savings for the college is known as the medium-term horizon. Finally, spending on retirement is considered as the long-term horizon.
Another name for time horizon is planning horizon. It is essential in administrations like risk management, finance and accounting to allot a fixed time horizon so that the alternatives can be measured for productivity over the same time.
The Basics of Investment Time Horizons
An investment time horizon is defined as the duration for which one expects to hold a security or investment to fulfil a specific goal. Investments are divided into two main categories: bonds (which has less risk) and stocks (riskier). The longer the investment time horizon, the riskier or more aggressive is the portfolio that investors can build. The shorter the investment time horizon, the less risk or more conservative is the portfolio.
The Detailed Description of Time Horizon Intervals
A time horizon does not exist physically in the real world. Although the short term time-horizons such as the end of the week, end of the month, end of day matter a lot in accounting. Generally, they are mere aggregates and simple mark to market processes that happen for a short term horizon. Leaving large portfolios, no mark to future operations or analysis takes place for such a short duration.
The most common time horizons used in outlining are per quarter ( three months or a quarter year), one year, two years, three years, four years (commonly used in a representative democracy during office term or election cycle) and five years ( used in corporate planning).
More far-sighted government agencies and private companies can also use duration between ten and one hundred years. For the United States treasury bonds (such as a long bond) and mortgage agreement, thirty years is usually used. One hundred years (sometimes regarded equal to seven generations) is the duration often used by modern Greens and ancient Iroquois. The Forestry Commission, an organisation in the UK, plans over a century (in future).
The Disadvantage of Investment Time Horizon
In global policy, every participant has different time zone habits, so they must agree on a standard time horizon to carry forward their actions. Achieving these simultaneous policies is a little bit difficult and cannot happen without a contract or agreement. The individuals who take early action will be at a disadvantage compared to those who take late measures on the regulatory matter. Thus, the organisation named as International Simultaneous Policy Organization is responsible for bringing a simultaneous global policy to avoid these kinds of disadvantages. The campaign they run is known as the SIMPOL campaign.