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How does time generally affect the risk of an investment?
Short-term investments are generally less risky than long-term investments.
Long-term investments are generally more risky than short-term investments.
Time has no effect on the risk of an investment.
Short-term investments are generally more risky than long-term investments.
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Long-term investments are generally more risky than short-term investments.
Explanation: The longer the time horizon, the more uncertainty and exposure to events (economic cycles, inflation, interest-rate changes, business risk) that can affect returns. Note exceptions: for some assets (e.g., stocks) volatility may average out over long periods and the probability of a loss can decline with time, so the effect of time on "risk" depends on which risk measure you use and the asset class.
Explanation: The longer the time horizon, the more uncertainty and exposure to events (economic cycles, inflation, interest-rate changes, business risk) that can affect returns. Note exceptions: for some assets (e.g., stocks) volatility may average out over long periods and the probability of a loss can decline with time, so the effect of time on "risk" depends on which risk measure you use and the asset class.
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