Question of the Week – What is Time Horizon Risk?

This week our risk series is focusing on time horizon risk.

We discussed time horizon when it comes to investing in a previous blog post. If you know about time horizon you can probably guess what time horizon risk is.

Time horizon risk is the risk that your time horizon is shortened due to an unexpected life event. This could be something like having a baby, losing your job, your car breaking down or an unexpected major home repair. These unexpected life events could leave you needing extra cash to cover expenses that you did not plan for. To pay for these unexpected expenses you may need to sell your investments earlier than planned. If you are forced to sell these investments when the market is down or before they mature, you may lose money on your investment.

Time horizon risk also applies to investors who should be investing for the long term but have chosen unsuitable investments for their goals. For example, if you are investing to save for your retirement but have invested in only short-term investments you may not meet your investment objectives and miss your time horizon. Always make sure your investments are suitable for your time horizon when investing.