Horizon Analysis

The moon is rising.

There. That's a horizon analysis. But not as good as The Sun is Also Rising. Fine Hemingway book.

Your investment horizon represents the amount of time you plan to hold an investment. If you need the money two years from now to pay for that planned vacation to Vladivostok, then your investment horizon is two years. If you just graduated college and plan to invest for retirement, your investment horizon might be 40 years.

Horizon analysis takes into account what's likely to happen over the course of an investment horizon. What's going to drive the economy? What will interest rates do? The goal is to maximize returns over that limited investment horizon.

You have a kid who just turned 15 years old. She's going to college in three years. You have a pot of money to invest, but you'll need it in three years to pay for her college. Your investment horizon is three years.

With that in mind, it doesn't make sense to invest in that biotech startup that's five years away from applying for FDA approval. Instead, you use horizon analysis to figure out the best place to put your cash.