Choosing Your Investments

There are thousands of mutual funds in the investment marketplace. Within this universe, there are different types and categories of funds. Choosing the best funds for your retirement goals depends upon your goals, your risk tolerance, and your time horizon.

Setting goals means estimating how much annual income you will need to afford the lifestyle you want after retirement. If you plan to travel or build a dream home after retirement, your goals should be more aggressive. Remember as you estimate your future expenses that the amount of income you will receive from Social Security will likely be less in the future.

Your time horizon in your retirement plan is defined by the age at which you plan to retire. If you are a young investor with at least 20 years until retirement, your time horizon is long-term. If you have less than 5 years until retirement, your time-horizon is short-term. If you are in between, your time horizon is intermediate-term.

Your risk tolerance is best measured by your comfort level with investment losses. Because all investments change in value, there is a potential that your investment may be worth less than your original investment from time to time.

A good way to gauge your risk tolerance is to ask yourself, how well would you sleep at night if one of your investments lost 5% or 10% or 20% over a short-term period? If any short-term loss of investment value would keep you awake at night, your risk tolerance is low. If you would sleep comfortably despite a large loss of investment value, knowing that your investments have the potential for growth over the long-term, your risk tolerance is high.

If your time horizon is…	And your risk tolerance is…	Your investment portfolio should look like…
Long-term	High
Long-term	Low
Intermediate-term	High
Intermediate-term	Low
Short-term	High
Short-term	Low
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