Time horizon

Your time horizon is the gap between investing and spending. Money for a house deposit in two years has a short horizon; money for a retirement 30 years away has a long one; a retirement pot being drawn down over decades has a horizon that stretches well beyond the first withdrawal. Different pots of money often have different horizons, so it helps to think about each goal separately rather than about your wealth as a single sum.

A longer horizon allows more risk because there is more time to recover from falls: historically, the range of annualised returns from a diversified share portfolio has been much narrower over long periods than over single years, although losses over a decade or more have occurred in some markets. Money needed soon should generally not depend on the stock market, since a fall at the wrong moment cannot be waited out. As a goal approaches, many investors gradually shift towards lower-risk assets, which is how target-date and lifestyle funds work.