1.Time diversification is the idea that over the long term, above-average returns tend to offset below average returns.
2.The impact of short-term market volatility reduces as the standard deviation of annualised returns decreases with an increase in time horizon.
3.If a risky investment performs poorly at the beginning of a long horizon, one can postpone consumption or work harder to achieve the financial goals, compared to a short horizon.
4.This theory is useful in investing for retirement and children’s education goals, where the horizon is long, and consistency and discipline are important.
5.There are theories that refute the benefits of time diversification, claiming that a long horizon does not equal lower risk.
Content courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
