Part 1: Defining Your Goals & Assessing Risk Tolerance

Before you allocate a single euro or dollar, start by clarifying what you’re investing for and when you’ll need the money. Are you saving for retirement 30 years away, a child’s education in a decade, or a down payment within five years? Each goal has a different time horizon and risk profile.

Next, determine your risk tolerance—your emotional and financial capacity to weather market swings. A simple way is to ask: “If my portfolio dropped 20% in a year, would I…

• Panic and sell?
• Ride it out, knowing markets historically recover?
• Seize the opportunity to buy more at a discount?”

Your answer helps you decide how aggressive or conservative your asset mix should be. Younger investors with long horizons can typically afford more volatility; those nearing their goal may shift to capital preservation.