Consider your ability to take risk, your plan to balance risk and return, and any other principles you consider important to your long-term strategy. Here is Nanci's approach to investing. Nanci will balance taking as much risk as she possibly can to achieve a higher long-term rate of return with her ability to tolerate that risk and not panic in a downturn, selling at the wrong time. Recognizing that she will never know which asset class will outperform each year, Nanci will diversify across a wide range of investment opportunities. She will control costs by limiting expense ratios, 12b-1 fees, loads, brokerage costs, and advisor's fees.
Every investor has unique circumstances that influence their investment decisions.
Write down any that apply to you. She can afford to tolerate short-term market fluctuations. She chooses not to use emerging-markets funds or most sector funds because she thinks their risks are more than she can tolerate. To avoid an unduly high tax bill in any one year, if she decides to sell out of a significant position, she will strongly consider doing this over a period of time. As I mentioned above in the Executive Summary, if her portfolio fell by more than that, she'd have to re-examine her securities to see how she could cut back on the riskier holdings.