Getting clear on your goals helps you focus on what you really need to do to save for your retirement. So, setting a financial goal for your retirement investment strategy should be your first step. To help pursue this goal, consider the following questions:
- How long will it be until you need the money to start producing an income for you? This is your time horizon.
- Do you feel comfortable with the day-to-day ups and downs in the value of your retirement savings? This is your risk tolerance.
- Do you know how fast you want your money to grow? This is called rate of return.
- Do you know the risks and opportunities associated with different investments? This is investment knowledge.
- How regularly do you plan on contributing to your retirement plan?
The investment strategy you develop to work toward your retirement goal depends on the answer to all five questions, but your tolerance for risk is one of the most important factors determining the investments you choose.