- Age
- Your current age. This is by far the most important aspect of asset allocation. For most people the majority of their portfolio is for their retirement. The younger you are, the less likely you need this money any time soon. This allows you to invest more aggressively in stocks that generally have the best long term returns. As you get older, it is advisable to move more of your investments to securities with less fluctuation such as cash and bonds. This can help insure the money is available when you need it.
- Years before you begin to withdraw
- The longer you have before you need to tap into your investments, the more aggressively you can invest. Likewise, if you need to begin withdrawals soon, you may not be well served by a portfolio that can have wide fluctuations in value.
- Your investment goal
- This question is really about determining your expectations for this investment. Asset growth will require exposure to stocks, a focus on income requires exposure to bonds and protecting your initial investment will require a larger cash reserve.
- Risk tolerance
- Your personal ability to tolerate your portfolio value fluctuating up and down. Many people overestimate their ability to tolerate risk. The last two questions on the investor profile help weigh your ability to tolerate risk in your portfolio.
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