Your personal investment profile will change over time. For instance, your tolerance for risk may change as you get older, or as you acquire more assets and become more financially secure. When you approach retirement, your time horizon may shift, and become a blend of long-term and medium- or short-term needs. As it does so, you will need to make revisions to your investment plan to reflect these changes.
Table 2 shows how an investor's profile may change over time. The table also illustrates the degree to which profiles can vary.
Of course, your own profile may be very different than the one presented here; your profile may even fit one of those listed here, such as early retirement, even though you are in a different stage-perhaps early career. The table is only an example.
An effective investment portfolio is one that is based on a balance between the risks you are willing to take and the returns you need to achieve your goals.
An understanding of the various aspects of your investment profile will allow you to assess that proper balance.
The next step is to match the investment characteristics of the various asset categories to your risk and return characteristics in an efficient manner that maximizes return while minimizing risk.
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