What is my time horizon?
All money invested in the stock market (this includes equity mutual funds) should be considered a long-term investment, i.e. money you won't need to tap into for three to five years, or more. Although historically equities have provided higher returns than almost any other asset class, they are volatile. No one can predict whether the market will go up or down in the short-term. You must be willing to allow sufficient time to ride out market fluctuations.

What is my risk tolerance?
If you tend to lose sleep at night because your investments have lost money in the past month or the past quarter, you may want to limit your exposure to stocks. Decide on a target allocation that mixes a portion of equities with a portion of fixed-income (bonds or cash).

We group funds according to risk in five classes. It's important to decide how much (if any) of your portfolio should be in the more aggressive Class 1 or Class 2 funds. It's best to set a maximum upper limit - perhaps 10%, 25% or 35% of your equity holdings. Then, modify your weighting within those limits as market conditions change. In the pages of NoLoad Fund*X, we frequently discuss when the potentially higher returns may be worth the additional risk these aggressive funds impose. There are often periods when you'll want to avoid these funds.

OK, you've completed the first important steps:

• Decided on a target portfolio plan;
• Determined how much of your investment assets should be in the stock market;
• Established how much of your stock investments should be in speculative Class 1 or 2 funds.