During the development of an investment strategy, you should answer several questions about your preferences.
For what period of time are you investing? A short-term investor needs money in one or two years. An intermediate term is two to five years, while a long term is at least five years.
What are your investment objectives? Investors committed to growth are looking for appreciation of capital with income a secondary concern. Total return investors want a balance of income and appreciation of capital. Income investors are most concerned about interest or dividend income with capital appreciation secondary. Individuals interested in preservation of capital are more concerned with protecting their principal.
How risk tolerant are you? Those uncomfortable with the thought of losing more than 5% of their principal in one year have a low tolerance for risk. A moderate tolerance could stand a loss of 5% to 15%, while a high tolerance could withstand a 16% to 25% loss.
Are you interested in tax-advantaged investments? Your marginal tax bracket will have an impact on the types of investments you choose.
What rate of return do you expect on your investments? Although past performance is no guarantee of future performance, reviewing historical rates of return for various types of investments will give you an idea of what you can expect.
Your answers to these questions may change over time, so it is important to periodically review them to ensure that your investment strategy is appropriate. Please call if you'd like help evaluating your answers.