Investment time horizon
The horizon connects an investment with its objective, expected cash needs and capacity to bear uncertainty. It can differ from the instrument’s contractual maturity: an investor may plan to sell a long-term bond earlier, exposing the sale price to market changes. An appraisal horizon must also recognise relevant cash flows or continuing value beyond an explicit forecast period. A long horizon does not guarantee recovery from losses, remove liquidity needs or justify any level of risk. State whose horizon is being used and whether it is planned or contractually fixed.
Worked example
A business expects to need funds in six months but considers a five-year bond. The bond’s maturity is five years; its investment horizon is six months, so price risk on an early sale matters.
Common mistake
Treating intended holding period and contractual maturity as identical or assuming a longer horizon makes every risky investment safe.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |