Getting started

Risk and time horizon

Rethink how you think about risk

Risk is more complex than a down market. One of the biggest risks is that you won’t reach your goal or won’t reach it within your time frame. That’s why time horizon — how long your investment has to grow — is also a factor in determining the right level of risk for your portfolio. The shorter your investment time horizon, the greater the risk of loss on your investment.

 

How much time do you have to invest?

The risk of avoiding risk

When markets decline, it can be tempting to pull your money out until things calm down. But that could be a mistake. Even if you sell early in a downturn, it’s impossible to know the right time to get back in.

The chart to the right compares the returns of a hypothetical investment of $1,000 in the S&P 500 Index from 2012 to 2022. Investors who remained steadily invested would have seen their $1,000 investment almost triple in value, growing to $2,692. However, investors who missed 40 of the best days during that period could see their investment top out at $646 — 76% less.

The lesson: Focus on time in the market, not timing the market.

The column chart displays the values of a $1,000 hypothetical investment in the S&P 500 index, excluding dividends, from 12/31/2012 to 12/31/2022 if an investor is invested for the entire period, missed 10 best days, missed 20 best days, missed 30 best days or missed 40 best days. The amount shown if an investor is invested the entire period is $2,692. The amount and loss in value if an investor misses the best days are as follows: 10 best days is $1,474 and a loss in value of 45%, 20 best days is $1,071 and a loss in value of 60%, 30 best days is $825 and a loss in value of 69% and 40 best days is $646 and a loss in value of 76%. Values in USD. The source for this data is RIMES and Standard & Poor's. Past results are not predictive of results in future periods.

Learn more about investing

Now that you understand risk and time horizon, explore other important investment concepts

ASSET ALLOCATION AND DIVERSIFICATION

S&P 500 Index is a market capitalization-weighted index based on the results of approximately 500 widely held common stocks. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
There may have been periods when the results lagged the index(es) and/or average(s). The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
Each S&P Index ("Index") shown is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.
All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.
Use of this website is intended for U.S. residents only.
American Funds Distributors, Inc.
This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.