when investors have a longer investment horizon they can take on more risk since the market has many years to recover in the event of a pullback for example an investor with an investment horizon of 30 years would typically have most of their assets allocated to equities 
beyond that an investor with a long time horizon may invest their assets in what are considered riskier types of equities such as mid cap and small cap stocks these types of stocks or sub asset classes tend to exhibit much larger price swings over short time periods than do large cap stocks because they tend to be less well established and are more susceptible to outside economic forces thus while they may be risky for investors with shorter investment horizons these short term swings have little to no impact on investors looking to hold on to those stocks for the next 30 years investors adjust their portfolio as their investment horizon shortens typically in the direction of reducing the portfolio s level of risk for example most retirement portfolios decrease their exposure to equities and increase their holdings of fixed income assets as they near retirement fixed income investments typically provide a lower potential return over the long run relative to stocks but they add stability to a portfolio s value since they typically experience less pronounced short term price swings example of investment horizoncarol is 30 years old and works as a software engineer she has a long term investment horizon and is risk averse hence she invests her savings in a home and fixed income securities that will mature in the next 30 years 