What are the most important components of an investment decision?

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When making investment decisions, every investor must firstly define their goals and then break down further decisions. These goals can be divided into three levels:

  • Time horizon: answers the question “How long do I want to invest my money before I divest it for other purposes?”
  • Return target: answers the question “What expectations do I have or how much do I want to earn within a certain period of time?”
  • Risk target: answers the question “How high is my risk tolerance (possibility of earning less than the return on risk-free securities, such as treasury bills, or even of losing part of the invested capital), in order to have the opportunity earn more than a “zero risk investment”?

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