- Your risk tolerance
- Your time horizon
- Your need for current income
- Your need for long-term growth
- Your plan of action
- Your schedule for measuring your progress
Your time horizon is simply how long you plan to maintain your current investment strategy. It's usually tied to some major expense or event, such as the arrival of college years for the kids or a planned retirement date. For investors already in retirement, the time horizon for an income portfolio may be their life expectancy. The shorter your time horizon, the more conservative your plan should be. As we have just witnessed, markets can go down for several years in a row. While they have always eventually recovered in the past, the markets may not follow your timetable, leaving you short of the necessary funds when it's time to write the check. In general, money you absolutely need to spend within four or five years should not be a part of your investment portfolio.
Your need for current income
Your need for long-term growth
The total return your portfolio provides is made up of two parts:
- income and
- How much will your future goals cost once inflation is taken into account?
- How much have you accumulated so far?
- Where is the rest going to come from in the time you have remaining?
- Is there a rate of return you can reasonably expect that will help you get the job done, and can you actually achieve that return while staying within your comfort level?