What's the difference between risk tolerance and time horizon, and which matters more?

Risk tolerance is how much volatility you can emotionally stomach without panic-selling. Time horizon is how long until you need the money. They're related but distinct, and both shape your allocation. A 25-year-old with a long horizon can recover from downturns, but if she'll sell in a crash, her emotional tolerance still forces a tamer mix.

Generally, time horizon should drive the big picture: long horizons justify more stocks because you have decades to ride out volatility, while short horizons demand safety regardless of temperament. Risk tolerance then fine-tunes it, so you own a mix you can actually hold through a storm. The worst outcome is an aggressive portfolio abandoned at the bottom. Match your allocation to whichever is more limiting, and revisit it as your life and goals change.