Investing 101: Knowing Yourself

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Investing 101: Knowing Yourself
Your investments should be aligned with the time horizon in which you will need the money,
especially if some or all of your investments are targeted for a specific goal.
In contrast, someone in their 60s likely will and should have a lower risk tolerance if for no other
reason than they don’t have the time to fully recoup a major loss in the value of their investments.
Every investor has different reasons for investing, different goals, different time horizons and varying degrees of comfort with investing.
For example, if you are young parents investing for your newborn’s college education,
your long time horizon allows you to take a bit more risk in the initial years.
Your risk tolerance will likely be in part a function of when you need the money—known as your time horizon—which is usually a function of age.
When your kid gets to high school, you might adjust the investment mix to help ensure
that you don’t suffer any major losses in the years leading up to the start of college
You might even have different investments for different goals.
Are you trying to accumulate money for a longer-term goal such as a college education for your kids or perhaps a comfortable retirement for yourself?
You also need to know your risk tolerance and time horizon as part of the goal-setting process.


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