Which statement about time horizon and risk tolerance is most accurate?

• A. Time horizon is irrelevant to risk assessment.
• B. Time horizon primarily determines tax strategy, not risk.
• C. Time horizon is a key factor in determining risk tolerance.
• D. Time horizon guarantees returns.

Answer: (C)

Time horizon shapes how much risk you can take with investments. When you have many years before you’ll need the money, you can tolerate more short-term fluctuation because there’s time to recover and benefit from potential growth. With a shorter horizon, you typically protect capital more and avoid big downturns, since you may need the funds soon. So time horizon is a primary factor in determining risk tolerance. The other statements miss this relationship: risk isn’t irrelevant, and it isn’t just about tax strategy, and returns aren’t guaranteed by how long you invest.