Your 20s and 30s:

At this stage in your life, your investment goal is probably to maximize your capital. Your time horizon is very long, and your risk tolerance is probably high. Often, stocks will comprise a significant portion of your portfolio, but you should also consider bonds to diversify your portfolio and balance risk and volatility. Since your risk tolerance is high, you might consider higher-risk bonds, such as high-yield bonds. If your investments in your employer's 401(k) plan or other retirement plan are heavily weighted in stocks, you might want to increase your bond allocation in your taxable portfolio.

No matter how you decide to invest, now is a great time to get in the habit of investing regularly by starting a dollar cost averaging program. Dollar cost averaging involves investing a set amount of money in the same investment on a periodic basis. For instance, instead of investing a lump sum in one stock immediately, you might invest $2,000 in that stock at the beginning of each month. A dollar cost averaging program is by definition a long-term program. Thus, if followed consistently, it helps encourage long-term investing. Dollar cost averaging, however, does not ensure a profit or protect against loss in declining markets. Before starting a dollar cost averaging program, consider your financial ability to continue purchases through periods of low price levels.

Your 30s and 40s:

Your investment goal at this point in your life is probably to grow your capital. Your investment time horizon is still long, but your risk tolerance may be more moderate. During these years, you'll typically accumulate a significant portion of your retirement portfolio. As your children's college educations and your own retirement get closer, you will probably feel less comfortable with the possibility that your investment portfolio could decline substantially, which is why your risk tolerance is moderate. At this point, you may want to shift more of your investment portfolio to bonds. You may want to consider zero-coupon bonds, with maturities that coincide with your children's college educations. If you find yourself in a high tax bracket, you might want to take a look at municipal bonds, since the interest income is exempt from federal, and sometimes state and local, income taxes.

Your 50s and 60s:

Now, your investment goal is probably to conserve capital. Your investment time horizon is moderate, while your risk tolerance is lower. With retirement getting close, you don't want to risk a major decline in your investment portfolio, so your risk tolerance is low. Bonds will probably take on increasing importance in your portfolio at this stage of life. You'll want to make sure you have a well-diversified portfolio of bonds, probably setting up a bond ladder to manage interest rate risk. Municipal bonds will probably still be of interest if you remain in a high tax bracket.

Investing After Retirement

At retirement, your primary investment goal is to preserve your capital. Your investment time horizon will depend on when you will use your investments, but your risk tolerance is probably low. Many retirees like to use the steady income from bonds as a source of regular retirement income. Inflation is also a concern, so you may want to consider Treasury Inflation Protection Securities (TIPS).