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Asset Allocation For Dummies® by Jerry A. Miccolis, Dorianne Perrucci

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Chapter 6. Laying the Foundation for Your Plan

In this chapter, we help you nail down your investing plan. Here you can find guidelines that serve as an important step toward establishing your investment strategy and then setting up your asset allocation. You don't want to skip this step!

We start with your time horizon. Many investors don't realize how long their horizon truly is. Your time horizon directly influences your choice of investment strategy: The more time you have to invest, the more short-term risk you may be able to take.

We also help you to consider the returns you'll require from the assets in your portfolio. And we show you how to gauge your risk tolerance, because the risk you're willing, and able, to take along the way is a particularly important consideration.

You'll need to think about a few pragmatic constraints that you'll have to impose on your portfolio, and we show you how to deal with those in this chapter. For example, you may have holdings you won't relinquish, or investments — even whole asset classes — you won't even consider.

And don't forget taxes. They're one of the last things any of us wants to think about, but they're a priority in planning a portfolio. You want to be aware of your income-tax situation and its impact ...

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