The horizon is determined not by desired returns, but by the date of future cash needs: buying a home in two years, funding a child's education in ten years, retirement in twenty-five. The acceptable level of risk depends on it.
The relationship is straightforward: the shorter the timeframe, the less time to recover from a decline, and the more conservative the instrument should be. Money needed within a year should logically be kept in deposits or short-term bonds, not stocks—not because stocks are bad, but because the sale moment might coincide with a market downturn.
It's important to separately maintain a reserve for unexpected expenses: it should be accessible anytime and not part of the investment horizon at all. The most common mistake is investing without defining a timeframe: this leads to selling decisions based on price fluctuations rather than planning, and results depend on chance.