An investor's risk tolerance is simple. How much money are you willing to lose? The answer to this question should drive investment allocations.

For many people, the time horizon for their investment portfolio planning may need to be longer than they initially think. Reaching retirement age is hardly a logical point at which to modify your investment policy. At the very least, you should plan for a period covering your life expectancy, and married couples should plan for a period covering their joint life expectancy. If you expect to bequeath a portfolio to your children and hope they will pass it on to subsequent generations, the time horizon for investment planning, for all practical purposes, becomes infinite.

Investment objectives are meaningfully expressed only in terms of investment time horizon and tolerance for risk and volatility, and not in terms of desired return. Everybody desires a maximum return but should expect to earn no more than what the markets in which they are invested bestow.