Why You Should Allocate Your Funds Depending Upon The Time Horizon Of Your Goal.
Time horizon is the duration you are willing to hold your investments.
T
he time horizon you choose and the risk of an investment are related and depended upon the priority of your goal.
Prioritizing your goals is very important depending upon your needs or requirements i.e. which goal is to be achieved in next 3 years or within 10 years or beyond that.
Let’s take a look at how Asset Allocation is different for investors with different time horizons to meet their goals.
|
Short Term Goals |
Medium Term Goals |
Long Term Goals |
| Time Horizon | ||
| Less than 5 Years | 5-10 Years | Beyond 10 Years |
| Example | ||
| Saving for car, vacation | Saving for your child’s education | Saving for your retirement |
| What to Keep in Mind | ||
| Allocate major funds towards fixed income assets and fewer funds in riskier assets | Allocation of Funds to riskier asset classes can be increased to take advantage of higher returns. Mutual Funds which include mix of stocks and bonds are popular investment option | The longer investment horizon the more risk you may generally be able to assume. You can invest funds to aggressive assets to generate higher returns and remove the risk of short term fluctuation. |