For the last three months the stock market has had an impressive rally. In simple terms, it is up about 30% from the bottom in March, but still down about 40% from the highs in 2007. As the panic phase of the recession appears to be over, now might be a good time to start thinking about your investment goals. However, it really becomes a question of addressing your personal goals.

Most people have a generalized view of their investment objectives. For instance, they may be saving for retirement, or putting a down payment on a new home, or putting kids through college. There are as many goals as there are people to come up with them. While it is important to understand our investment goals it is just as important to consider them in the context of our investment strategy and style.

When most people discuss their investment strategy they often use phrases like "I'm a long-term investor", or "I usually buy and hold for the long run." If our full-time working years generally start in our late teens or early twenties and often continue until we are in our mid sixties, it is reasonable to assume that our primary goal is retirement. Even so, we still need to assess whether our 'long term investor' or 'buy and hold' strategy meets the expected outcome in our goals.

Certainly Wall Street has made a great deal of money pushing this classic version of asset allocation on investors that allows many brokers to coral their clients into one of five 'risk' herds or buckets from 'conservative' to 'aggressive'. This is important for most brokerage firms because once they get the five portfolios herded into the desired bucket they can manage each of them en masse. This lowers the administrative, reporting, execution, and allocation costs for the brokerage and management firms. By getting you into a set portfolio your broker or advisor can also handle a much bigger group of clients. Most clients want to believe that they have a personal relationship with their broker, so the financial services industry uses catchy terms like "mass customization" to help sell these strategies.

This is not to say that all of these programs are bad or that brokers or advisors are dishonest; only that brokerage firms have made a great deal of money getting people to invest in the way that maximizes their efficiency and make it easy for them to handle your money. Certainly many of us have benefitted from gaining access to investment management, even if it is limited to one of five risk categories. But, each of us is different, with different goals, and for many of us these goals change throughout our lives. So at a minimum, we need to make sure that once we establish our goals, we understand what is needed to meet these expectations form both a return and a risk perspective. We also need to understand that these goals and expectations will and should change over time.

When we first begin investing, (let's assume that it is early in our life), we can take more risk because our longer term investment horizon increases our ability to absorb losses if our goal is truly a long term one. A good working definition for the term 'risk' is 'the likelihood of loss or receiving lower than expected returns' as it pertains to our investments. Too often we think of risk and synonymously think of the possibility of increased returns when what we should really be thinking about is the possibility of increased losses. Our ability to absorb losses directly impacts our ability to meet our goals. So our goals and the time horizons needed in meeting these goals is where we should increase our concentration. Whether we are saving for the purchase of a home, a future tuition, or retirement, we should be considering decreasing our risk tolerance as we near our goals.

Our communications with our broker or advisor are therefore extremely important. Most of the people in the financial services are honest and trustworthy people who are trying to do a good job for their clients. To be good clients we have to make sure that we give some real thought to our investment goals and our tolerance for risk. When we have clearly outlined our goals and have focused on our ability to lose money in our effort to meet these goals, there will be no need to 'hide our statements in the drawer' or chant to ourselves that we are 'in it for the long term'.

So, the checklist of things that we should think about before our next meeting with our broker or advisor might look something like this:

1. Get a thorough understanding of our investment goals.

2. Think about our tolerance for risk – a good starting point would be how we handled the last 18 months.

3. Are our goals compatible with our tolerance for risk?

4. How and when are we going to communicate a change for our risk tolerance as we approach our goals?

Mark Stys was formerly the head of Investment Manager Products for Fidelity Registered Investment Advisor Group and is the Chief Investment Officer of Bluemont Capital Advisors, LLC. Mark can be reached at mstys@bluemontcapital.net.