One pattern to questions I miss on the quizzes relate to certain aspects of suitability. Sometimes the choices for answers do not always seem to fit the question. One issue I seem to have is time horizon. Unless more information is given, what is the best default definition of “time horizon”. Generally, I find myself thinking of it as time until retirement and/or time until “end of plan” (life expectancy). Which way should we think about it?
For example, age 72 and 5 year time horizon, age 45 and 15 year time horizon. In the former, I cannot tell if it implies life expectancy or not. In the latter, it seems to suggest time to retirement. Yet, I am not sure. I’ve seen other age and time horizon combinations that are more puzzling.
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Hi @Emilio_Rogahn - these are great questions. The simplest way to think of time horizon is the period before the investments will need to be liquidated and used. That’s why you’re encountering so many various time horizons at different ages. For example, a 35 year old with a 10 year old child would have an 8 year time horizon if investing funds for college expenses (assuming the child will need the funds at age 18).
I would assume the same in the two examples you provided. The 72 year old will need to use funds within 5 years around age 77, and the 45 year old will need to use the funds in 15 years around age 60. A common event tied to time horizon is retirement, but so many other events can influence it as well. Saving for a home purchase, saving for a charitable gift, saving for a home renovation, etc. All depends on the investor and their own personal scenario.
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Thank you, Brandon. This helps. I think some personal biases were getting in the way and your response gave me the right nudge.
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