Holding Investments: How Long Is Too Long?

Warren Buffett has been quoted as saying that his favorite holding period is forever, but for people without such abundant cash reserves, how long is too long?

It all depends on what your goal is. Before making any investment, you should estimate your investment horizon.

Photo by fabiola medeiros, courtesy of flickr

If you know when you will need your money back and you also know you will need a certain amount of money at that time, then perhaps investing in bonds could be good for you.

Bonds have periodic interest payments, which make for predictable income. Preferred stock also comes with steady cash flows in the form of a fixed dividend.

If you have no horizon in mind and cash to spare, then stocks could be a fitting investment. Common stock promises no dividend or particular value at redemption, and has no expiration date.

In terms of risk, generally speaking, the fixed cash flows make bonds and preferred stock less risky than common stock.

So, determining your investment horizon is not only about when you will collect money. It can also help you determine how to make the money!