Investment Horizon
When do you need the cash?
That is, you're investing your hard earned after-usurously-taxed-dollars. When do you need them to be returned as dollars?
If you're 26 and investing retirement money, you need them back in 50 years or so. Maybe longer. So you want smaller, faster growing, albeit more volatile companies as your investment purview.
If you're 32, recently married, and need to save another 12 grand to make your down payment on the dump of your dreams, you can't take stock market risk, so maybe your horizon is 6 months, and you can only afford 6 month FDIC-backed CDs paying 2% interest.
And then there's the vast in-between. Venture capital and private equity funds usually run a dozen years or so. Hedge funds stamp a gain or loss every quarter. But many carry "you can't redeem your dough without a year's notice" clauses. They're all over the map, but time horizon matters a ton in making good investment choices.
Bottom line: the longer you have, the more risk you can generally take. Time here is your friend...and yes, it's ironic that, when you need the money least or least-soon, you do the best with it. Go figure.
Related or Semi-related Video
Econ: What are Planning Horizon and Infi...5 Views
And finance Allah shmoop What are planning Horizon and infinite
horizon All right people You go to the doctor for
a routine checkup and get some sobering news after you
turn your head and cough you picked up a parasite
from a toilet seat at the mall And while there's
a worm like creature in your belly growing at an
exponential rate well right now it's about the size of
a hot dog By tomorrow it will be the length
of an average garden hose and you'll probably be bulging
at the seams in excruciating pain Within a couple days
the warm will likely have burst through your body Leaving
you is a pile of goo Is it slippers off
to the mall to lame or eggs in the bathroom
But for now you're in the hot dog stage You
can still move around You can still do whatever you
want But you're thinking How are you going to spend
that last day Brush your teeth Finish your taxes politely
return all the work emails sitting in your inbox Ari
The whole bunch of donuts Yeah probably not More likely
you'll empty out your bank account and catch the fastest
flight to Vegas Okay same doctor's visit Different result Everything
checks out You're going to live a long life That's
the good news The bad news No teeth brushing tax
doing email returning all that stuff all back on the
table all part of your itinerary Now in your life
your time horizon matters You make different decisions based on
Well when you look on ly in the short term
than you would if you were looking at the longer
term a long timeline toe worry about things Which brings
us to the difference between planning horizon and infinite horizon
Okay a planning horizon is the length of time into
the future that a strategic plan covers Think Stalin's five
year plans and you know old Russia or in a
slightly gentler vein a company strategic quarterly plan Like the
next thirteen weeks here's what we're going to dio or
your program to lose twenty pounds in twenty days Yeah
good luck with that An infinite horizon refers to the
long long long term staring wistfully at the window to
an unknowable future may be a time of robot servants
and flying cities are maybe conquest by bug creatures from
space Who knows So how does this notion come into
play in a real life today Well think about uber
in the Ridesharing company's planning horizon They envision transitioning from
humans using their cars to company owned self driving vehicles
It's not gonna happen tomorrow It's a long term goal
but it's within their planning horizon But on the infinite
horizon while someone might invent teleportation like cars or self
driving or otherwise would then become irrelevant And uber's plan
is shot And that's maybe a good thing too for
uber because while self driving cars might be nice but
they're no match for conquering bug people from space hopefully
we'll just be able to you know teleport our way 00:02:39.685 --> [endTime] out of those problems
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