If you plan to spend your money soon, our program will shift your allocation away from stocks and stock mutual funds and toward cash. We also recognize that many parents temporarily go into debt to cover expenses. Although this time horizon gives you room to ride out a certain amount of market volatility, you should still shift your investments to more conservative assets if you foresee spending a significant portion of your principal. The recent capital gains tax cut makes this factor more important than ever. So the higher your bracket, the more you should concentrate your assets in equities and equity mutual funds, especially small-cap stocks paying low dividends.
Many people tend to overestimate their tolerance for market volatility.
If the answer to any of these questions is yes, you may want to set your risk tolerance no higher than medium. How you feel about the economy and the stock market. The more optimistic you feel, the more you should put into stock and stock mutual funds. You can either buy equities directly or shares in an equity mutual fund that holds a basket of stocks. You can either buy equities directly or purchase shares in an equity mutual fund that holds a basket of stocks.