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Creating a Personal Investment Strategy

So far, we have talked about different types of investments and what they can do for you. Your next step is to figure out how to put this information to work.

The place to start is with your personal investment strategy. If you don't have one yet, don't worry! This section covers the key elements you'll need to develop such a strategy. Then, we will talk about creating an asset allocation to meet your needs.

Getting Started
To begin, you'll want to determine what level of investment risk is acceptable to you for the return you expect to receive. Two important questions can help you define how conservative, moderate, or aggressive you may wish to be when investing:

  • How do you react to investment risk? Would you rather have consistent returns, or the expectation of faster growth? Realistically, the two are often mutually exclusive. Your tolerance for risk may determine your mix of stocks, bonds, and stable value/money market investments.

  • What is your investment time horizon? How many years do you have before you need to spend this money? Short-term investors generally need to protect their principal from even short-term risk. Long-term investors don't need to worry as much about short-term risk.

Your investment time horizon may tell you how much investment risk you can afford to take, but your risk tolerance will tell you how much risk you're comfortable with.

Historical Performance  Risk Tolerance