Goals and time horizons

When you'll need the money decides where it should live. The shorter the time, the less risk makes sense.

Name the goal and the date

“Invest more” is hard to act on. “Have $5,000 for a car in 3 years” or “Build savings for retirement” tells you how much, and more importantly, when. That second part is your time horizon.

Stock prices can fall a lot in a single year and take years to recover. If you'll need the money soon, a drop could hit at exactly the wrong moment. With a long horizon, you have time to wait for a recovery.

Match the money to the timeline

A common way to think about where money for different goals might go
Time until you need it	Example goals	Where it often goes
Under 3 years	Emergency fund, trip, laptop, car	Savings account or other cash
3 to 10 years	Home deposit, grad school	A mix of cash, bonds and some stocks
10+ years	Retirement, long-term wealth	Mostly diversified stock funds

These are starting points, not rules. Your comfort with ups and downs, called risk tolerance, matters too. Someone who would panic and sell during a drop may do better with a slightly calmer mix they can stick with.

Young investors have a superpower

At 18 or 25, retirement is 40 years or more away. That long horizon means you can usually afford more ups and downs in exchange for higher expected growth, and you have decades for compounding to work.

Key takeaways

Every goal needs an amount and a date.
Money needed within a few years usually shouldn't be in stocks.
A long time horizon is the biggest advantage young investors have.

Key terms

Risk tolerance: How much ups and downs in your investments you can handle, financially and emotionally, without abandoning your plan.
Time horizon: How long until you'll need the money for a goal. Longer horizons can usually handle more risk.

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