Oftentimes when you’re just starting and trying to accumulate money for retirement you’ve got a time horizon that is 30 years or 35 years. And if those dollars that you’re putting away in things like 401K’s and IRA’s are meant to be for retirement, which is a long time from now and if you’re just starting out than being more aggressive makes sense in those cases. And by more aggressive, I mean investigate things like growth oriented stocks or investments that have the potential to return a lot over time but tend to be more volatile in the short term.
If you’re kind of midway through life, and you’re in your 40s or maybe early 50s and now the time horizon might be a little bit shorter with regard to retirement, you still want to have some growth because you have to remember the fact that when a person retires, it’s not like you’re going to need all that money in one or two days. You’re still going to need that money over a period of a long time. So for example, if someone retires at the age of 66 or 67 you know their life expectancy might be another 20, 25, 30 years. So you always have to have that longer term perspective for longer term dollars.
But once again, if you’re saving for the short term, then having a shorter term time horizon, making sure to limit yourself to things that are much less volatile so that you’re not having to go through those cycles if you need the money in two or three years. Then your investment options will be much, much more limited.
Those are the primary factors you have to consider when you’re setting up an investment plan.