Before you decide which investments may be right for you, ask yourself two questions: When will you need to begin using your money (your investment time horizon), and how comfortable are you with risk?

How much time do you have to reach your goals?

Your investment time horizon depends on when you'll need the money from your retirement plan. The further away you are from that date, the more time there is to ride out the market's ups and downs. Generally, a short time horizon suggests a more conservative approach to investing, while a longer time frame may allow for a more aggressive approach. Your situation, however, may be the opposite.

What is your investment comfort level?

All investments involve risk. With stock and bond investments, the risk is that your account value will go up and down. With short-term investments, the risk is that your account won't earn enough to keep up with inflation over time.

• Investment risk
  This is the possibility your investments will decrease in value. Aggressive investments that have their potential for higher returns also have the potential for higher investment risk.
• Retirement risk
  This is the risk of reaching retirement without enough money to live as comfortably as you had planned. Investing too conservatively can sometimes create this type of risk, particularly when you consider the effect of inflation over your working life.

You need to personally determine your comfort level between these two types of risk.

Why is diversification important?

It's important to diversify your investments, spreading them around by investing in all three asset classes. By "putting your eggs in more than one basket," you lessen the risks associated with periodic downturns of the market. Although mutual funds are already diversified (investing in different securities), you can further diversify by selecting more than one of the AHRP investment choices. Keep in mind, diversification does not ensure a profit or protect against a loss.

What's your best investment strategy?

Now let's put it all together! The matrix below suggests investment strategies for varying levels of risk tolerance and time frames. Simply look at the matrix to find the strategy where your time horizon and risk comfort level meet.