As you decide whether an investment is right for you, there are few considerations more important than determining your time horizon. After all, the full value of money is contextual: it can only truly do its job if you have access to it when you need it.

When we refer to a “time horizon,” we’re talking about the general date range when an investor anticipates (or, in many cases, needs) an investment to conclude, to fulfill its stated financial targets, and to become fully liquid. In general, you should always have some sense of your time horizon when managing your investment portfolio — or time horizons, plural, as in many cases you’ll have multiple time frames along which you’re outlining your financial growth, with a variety of investments following each track.

How can knowing your time horizons help you? It isn’t just a planning tool, or an academic matter of personal finance philosophy. It has real, actionable use. Mapping how your investments fit into key junctures in your life can — and should — help determine the specific opportunities in which you choose to invest. The underlying structure of an investment usually makes that investment best suited to grow over a distinct amount of time; cutting that time short or attempting to stretch it past its natural longevity can mean missing out on optimal returns, or foregoing another investment that would have delivered stronger performance over a similar timeframe.

In other words, an investor should first have a grasp of their time horizon, and then select investments informed by that guideline.

But how do you determine your own time horizons, so you can invest in the best-fit opportunities? Fortunately, the considerations are usually straightforward, though there are quite a few factors that can come into play. For very specific costs and financial needs, time horizons can be cut and dried: say you have a big payment due in 18 months; if you invest to help meet the cost of that payment, the time horizon on that investment should, naturally, be about 18 months.

Many investors’ financial targets are not so direct, however — financial goals are often open-ended and ambiguous, aimed at the more general ambition of amassing wealth, while clearing a few specific milestones along the way. That’s a perfectly valid approach, but it can make determining time horizons more complex. And even in these open-ended cases, investors should sketch their horizons, to ensure their money is available when necessary.

At Fundrise, for example, our investments are deliberately designed to grow and mature over at least a 5-7 year timeframe, making them ideal for investors with that kind of mid-to-long-term outlook. They can also suit investors with much longer horizons and flexible liquidity needs — real estate has historically done well for investors who are willing to wait for advantageous windows in the market — but they’re not well-suited for investors with short time horizons or investors who might have pressing liquidity needs in the near future.

If you do have a longer time horizon, however, an investment like Fundrise can offer unique advantages. For a patient investor interested in avoiding the many public market costs that go into supporting constant liquidity, a Fundrise investment has the potential to offer better overall returns, more consistent annual performance, deeper portfolio diversification, insulation against a market downturn, and more. If you’re in a position where it makes sense to commit to a longer time horizon, it’s easy to get started with a Fundrise account, here.

And what if you’re not sure about your time horizon? In this article, we outline a simple but important sequence of considerations, designed to help you determine your personal outlook. Once you do that, you’ll be in a significantly stronger position to make investment choices strategically, aligning your goals, available funds, and specific time-based needs.

Your age can tell you where to start.

Age is perhaps the most obvious and broadest tool in determining a time horizon. While age does not typically qualify or disqualify you from any investment options outright, it does help you estimate how much time you have available to allow an investment to naturally grow; age lets you outline future opportunities you’ll have to add to an investment’s principal; and age frequently correlates with an investor’s overall financial aspirations, as they move through different phases of their lives.

Using your age, you can begin to sketch the full potential scope of your investing life. On one end, place your age as of today; on the opposite end, identify your target age when you hope to achieve your most distant investing goal: for many people, this is retirement. The intervening years between these two ages is the time horizon you have for that future target. Now that you have that longest horizon sketched out, you can begin to layer on investing targets you hope to meet in the meantime.

While no two investors’ lives are the same, these are some of the typical age-based financial events you may want to keep in mind:

  • Making student loan payments.
  • Making a home down payment.
  • Paying tuition for children.
  • Funding an extended vacation.
  • Funding a wedding.
  • Buying a car, boat, or other major purchase.

What will your income look like? What can you expect to change?

Now equipped with a blueprint of your overall investing timeline, consider how you’ll fund those investments, both initially and repeatedly, as you continue to compound your principal.

If you think of your financial targets as destinations, and investments are a major part of the engine that transports you there, then your regular income is a major fuel source that powers that engine. What your income situation looks like doesn’t just change the size and nature of your financial targets; it can also change the speed with which you achieve them.

Consider your income today, your expected income in five years, ten years, twenty years, and so forth. Realistically, are there any major adjustments that you think would shift your investment strategy? Perhaps you find that a home down payment could be possible in three years rather than five, based on an accelerating basis of how much income you expect to have available to invest. Or, alternatively, due to your expected income, you might project that the down payment is only possible in five years if you take on investments with higher risk.

Other goals’ time horizons might stay fixed — like retirement, for example. However, by recognizing these fixed goals and seeing that you could achieve them sooner than expected, you might alter your entire timeline, or you might reassess your overall portfolio’s mix, to make the path to achieving them in the same amount of time more convenient, or involving less risk.

Similarly, consider your lifestyle — and how you think it might morph.

The flipside to income is expenses and spending: your ability to anticipate and control your expenditures can have just as much impact on your targeted time horizons for investments as how much money you’re bringing in and investing.

Lifestyle creep is a very real phenomenon, easily capable of gnawing away at an investor’s savings, sneakily and steadily. That said, lifestyle upgrades can also represent serious goals in and of themselves, and perhaps you’re willing to extend your time horizons for them.

Be sure to consider any lifestyle changes you think you’ll pursue over the course of your investing timeline, alongside any sacrifices you’re willing to incorporate, as a way to increase the funds you have available to invest. How do those changes affect your potential time horizons? And how could those horizon changes affect the specific investment opportunities you might choose to add to your portfolio?

Any preferences? Have you determined your risk tolerance?

Up to this point, the factors we’ve considered have all been directly related to strictly quantitative factors. Your income and lifestyle expenditures affect how much capital you have available, thereby affecting the size of your investments’ principals. And your age helps determine how much time you have at your disposal to let investments grow.

Beyond these fairly concrete factors, however, there are also important matters of personal preference. These might include matters of taste. For example, the idea of investing in real estate might be inherently attractive to you, simply because you have an appreciation for the industry; similarly, perhaps you like tech companies, and the idea of supporting Silicon Valley’s biggest players appeals to you because you like the idea of supporting their missions.

Another matter of personal preference can be your risk tolerance: how much risk in an investment are you comfortable with?

The fundamental correlation between risk and reward underlies virtually all investments (though in an inefficient market like private real estate’s, it’s possible to find relatively low-risk opportunities with projected strong returns). If you have a high appetite for risk, there’s a chance that your investments will pay off fast enough that your time horizons will meaningfully change. Or, alternatively, if putting your capital at high risk makes your stomach turn, your projected horizons might shift accordingly.

Of course, one of the dimensions along which a portfolio can be balanced is risk, resulting in more consistent, healthy returns — but that doesn’t mean an investor won’t deviate here and there. A highly risky investment opportunity might stand to earn — or lose — more money in a year than a safer opportunity does over 50. What kind of investor are you, and how much risk are you willing to sustain? Will those preferences change which investments you’ll select — and how long you need to hold them to reach your goals?

Finally, anticipate your liquidity needs.

The final layer to peel back when mapping your time horizons is your liquidity needs — both guaranteed and anticipated. Another way to think about this is to determine how flexible you want your time horizons to be, keeping in mind that investments that provide higher flexibility often deliver lower (or more volatile) returns overall.

For example, if you’re in a position where you’d like to invest with a five year horizon but believe there’s a reasonable chance you’ll need to access those funds before the five years are over, it would be wise to seek an investment that supports moderate liquidity. On the other hand, if you’re considering that same time horizon but have enough financial stability or alternative resources that you can fully commit to the full investment duration, you can instead consider less liquid options that might project stronger returns, or deeper diversification.

Liquidity is often viewed by many of today’s newer investors — who have been trained to expect fast changes and instant portfolio management — as a must-have across all opportunities. But it’s more accurate to view liquidity requirements as analogous to risk tolerance: just as you can accept more risk as the tradeoff for a certain level of returns, you can strategically select illiquid investments that offer other benefits. And, of course, many smart portfolio allocations involve the incorporation of a range of liquidity options, to support a range of time horizon targets over an investor’s lifetime.

What’s on your horizon?

Like so many elements of investing, calibrating your portfolio for your ideal time horizons can be an evolving exercise, as your experience, goals, and financial life grow. An important first step, however, is building awareness, and taking the first step toward constructing a portfolio that helps you pursue those investment targets you know matter the most.

Of course, if you think your time horizon needs are suitable for an investment in private market real estate, opening a Fundrise account is quick and easy. For investors with a longer horizon, a Fundrise account can be a major opportunity.

Our portfolios are designed to support mid-to-long-term growth, while capable of delivering consistent cash flow in the form of dividends. Interested in learning more? You can get started here, or reach out to our team with any questions at investments@fundrise.com.