Review portfolio at every major life event

By Atul Shinghal

How you invest and where you invest are two factors that define whether you will be able to achieve your financial goals within the stipulated timeline. Balancing risk and growth when selecting an investment style depends on several key factors.

Financial goals

Your financial goals are a key factor in determining your investment style. Short-term goals (1–3 years) may require a more conservative approach, while long-term goals (10+ years) can often accommodate more risk. For example, a home purchase in 5–7 years may call for a moderate approach, children’s education in the next 10–15 years might require a moderate-to-aggressive strategy, and retirement planning over 20+ years can start with an aggressive approach for younger investors, becoming more conservative as retirement approaches.

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Understanding your risk appetite is equally crucial for selecting the right investment style. For instance, a conservative portfolio might allocate 15–20% to equities, 60–70% to fixed income, 5–7% to alternatives, and 0–5% to cash. On the other hand, an aggressive portfolio would allocate 60–70% to equities, 10–15% to fixed income, 5–10% to alternatives, and 0% to cash.

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The time horizon also plays a significant role. Longer horizons allow for more aggressive strategies, as there’s more time to recover from market downturns. As your time horizon shortens, it’s wise to shift towards a more conservative allocation to protect your gains.

Additionally, your current financial situation—income stability, existing assets and liabilities, and emergency fund considerations—should inform your investment style. Those with stable incomes and strong financial foundations may take on more risk, while those with less predictability should be cautious.

Remember, your investment style should evolve as your circumstances change. Conduct a thorough review of your portfolio at least annually, or when significant life events occur, such as marriage, the birth of a child, or a job change. To rebalance, you can gradually adjust your asset allocation by selling some investments and purchasing others to maintain your desired risk level.

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