Objectives / What do you want this money to do for you?
Are you investing for income? For retirement?
Time Horizon / When will I need this money?
If you need this money within four years (for example, buying a car) then liquidity is paramount and you can’t invest in long-term assets such as stocks and bonds. You can’t risk that the market will be depressed when you need the money. This restricts you to safe assets such as CDs and bonds that mature when you need the money. If you can invest for at least four years then you can use long-term securities because you can hold them until a depressed market recovers.
Risk Tolerance / How much can I afford to lose (financially and psychologically)?
If your portfolio dropped by 25% would that materially change your standard of living? How would you react if that happened – would you sell out, hold on, buy more? Focus more on the risks than on potential returns (think diversification).
What investment strategy will I follow and what can I reasonably expect?
There is no risk-free strategy. Know what potential risks you face.
Will I do this myself or work with an adviser?
Consider the “unknown unknowns” (i.e., what you don’t know you don’t know). Carefully interview prospective advisers.
Have a comprehensive written investment plan before you invest.
Work with an adviser to develop a customized “Investment Policy Statement” that will guide your future investment decisions.