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Risk and time horizon

Rethink how you think about risk

Risk is more complex than a down market. One of the biggest risks is that you won’t reach your goal or won’t reach it within your time frame. That’s why time horizon — how long your investment has to grow — is also a factor in determining the right level of risk for your portfolio. The shorter your investment time horizon, the greater the risk of loss on your investment.

 

How much time do you have to invest?

The risk of avoiding risk

When markets decline, it can be tempting to pull your money out until things calm down. But that could be a mistake. Even if you sell early in a downturn, it’s impossible to know the right time to get back in.

The chart to the right compares the returns of a hypothetical investment of $1,000 in the S&P 500 Index from 2013 to 2023. Investors who remained steadily invested would have seen their $1,000 investment more than double in value, growing to $2,581. However, investors who missed 40 of the best days during that period could see their investment top out at $621 — 76% less.

The lesson: Focus on time in the market, not timing the market.

The column chart displays the values of a $1,000 hypothetical investment in the S&P 500 index, excluding dividends, from 12/31/2013 to 12/31/2023 if an investor is invested for the entire period, missed 10 best days, missed 20 best days, missed 30 best days or missed 40 best days. The amount shown if an investor is invested the entire period is $2,581. The amount and loss in value if an investor misses the best days is as follows: 10 best days is $1,413 and a loss in value of 45%, 20 best days is $1,026 and a loss in value of 60%, 30 best days is $791 and a loss in value of 69% and 40 best days is $621 and a loss in value of 76%. Values in USD. The source for this data is RIMES and Standard & Poor's. Past results are not predictive of results in future periods.

Learn more about investing

Now that you understand risk and time horizon, explore other important investment concepts

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