After these requirements have been met, you can begin to develop your investment plan. Think carefully about the kinds of assets that are appropriate to your objectives and risk tolerance. Then assess your ability to bear risk by making a careful assessment of your personal financial position, taking into account age, family responsibilities, income level, cash flow, and tax considerations. Even your temperament has a bearing on your risk tolerance. If you are a worrier, confine your commitments to relatively safe securities.
Peace of mind means a great deal.
Usually, young adults with a lengthy time horizon and a growing income potential should be willing and able to assume more risk than older people who are nearing or are in retirement. Even for people in their 70s and 80s, however, a small commitment to aggressive investments, such as stocks, may make sense. People are living longer, and the prospect of above-average returns may be too important to forgo completely. For many young adults a major financial goal is the purchase of a home. The need to accumulate enough capital to make a down payment temporarily shortens the time horizon for this group of investors.