Time horizon and goals

"It's crazy to go into business with somebody who has entirely different expectations than you have."

It's crazy to go into business with somebody who has entirely different expectations than you have.

Your time horizon - how many years until you'll need the money you're investing - matters as much as your risk tolerance, and the two combine to define how aggressive you can afford to be.

Money you'll need within 2-3 years - for a down payment, for an emergency - should never end up in highly volatile companies, no matter how comfortable you feel with swings: a drawdown right in the year you have to sell turns a paper loss into a real one, because you're forced to sell at the worst possible time.

Money you won't need for 10, 15, 20 years - a supplementary pension fund, savings for distant goals - can afford to go through several market cycles, including the worst ones: time is what turns a temporary drop into a passing phase, not a permanent loss.

The goal, not just the horizon, also defines how much return you actually need. If your goal is reachable with a modest, steady return, you don't need to take on risk that return doesn't require: the extra risk you take without a real need is pure gambling, not strategy.