Investing for retirement is a must. No one is going to fund your retirement but you, so it is your responsibility to come up with a balanced and effective investment strategy.

But formulating the right strategy for your particular situation can be tricky. When it comes to investing for retirement, how aggressive should you be? The answer to that question is largely affected by three main factors, and believe it or not, none of them involve how much money you make. In fact, saving for retirement has less to do with how much money you make and more to do with how you handle it.

Factors to Determine Your Investment Strategy

1. Knowledge Level
If terms like “allocation” and “diversification” are just noise to you, don’t even consider riskier investments like options, futures, commodities, or even individual stock holdings. Mutual funds are likely where you should be. That said, mutual funds also run the gamut from conservative to aggressive – but at least most of them come with instant diversification, which provides some measure of protection and doesn’t leave you exposed to the vagaries of individual holdings.

When I first began investing for retirement through an employer-based 401k plan, I had no knowledge of retirement savings whatsoever. The only thing I knew was that I was supposed to save, so that’s what I did. Since then I’ve learned how to read a mutual fund prospectus, and I now take an active, informed role in managing my retirement portfolio.

2. Age
If you’ve calculated how much money you’ll need to retire, it can be a little scary. In fact, for most people, the only way to get there is through growth-oriented mutual funds and stocks. This is one reason why the time to hold a majority of aggressive investments is when you’re young.

If you are many years away from retirement, you can afford to be more aggressive since declines in your portfolio have a long time to correct themselves – as long as you stay invested. However, as you grow older, your retirement investment portfolio should look more conservative – ratchet back aggressive investments in favor of conservative investments, such as investment grade bonds and bond funds, and large-cap preferred stocks.

However, as many people can attest to, conventional wisdom like investment-grade bond-investing doesn’t always work out. It may be more prudent in later years to hold a majority of safe investments, such as CDs, treasury bonds and bills, and annuities.

3. Comfort Level
While this is a subjective category, it’s an extremely important one. For example, if you are a conservative person by nature, you may never feel comfortable investing in startup companies overseas. On the other hand, if you enjoy risk, you may have a hard time toning down your portfolio when you really need to.

It’s essential to be aware of your comfort level and to act accordingly. If you’re cautious, don’t get into an investment with roller coaster swings, because you’ll have to stay on board for the whole ride in order to benefit. If you jump ship during a big decline, you could miss the opportunity to make up that loss.

However, it can be a good idea to invest at the very edge of your comfort level. After all, the very conservative investor may not get the growth he or she needs if the portfolio is made up entirely of bank CDs – just as the risk-taker could benefit from tolerating the relative doldrums and security that CDs bring.

Other Factors

In addition to estimating how big a nest egg you’ll need, consider what other sources of retirement income you may have. Do you expect to receive a large inheritance? Is there a big insurance policy with your name on it? Are you in line to receive a pension from your present or past employers? Do you own any large assets or valuable collectibles that you expect to appreciate and can sell if needed?

Though how aggressive you should be isn’t directly affected by how much money you make, it is affected by how much you can save and how lavish a retirement you want. If you don’t need to make big returns to reach your retirement goal because you’re saving enough or have other retirement income sources, then you don’t need an aggressive portfolio. Still, depending on your comfort level, you may want one.

Final Thoughts

Saving for retirement can be tenuous. Tax rates may change, government programs may disappear, and there is no guarantee – no matter how you invest – that your investments will make money. The most important thing is to do what you can with the information you have.

If you haven’t started yet, you need to start saving for retirement now. Also, educate yourself on the different types of investments and accounts to see what makes sense for you, and take a broad approach. Don’t set yourself up for failure by putting all your eggs in one basket. Invest in an array of companies via mutual funds with different capitalization values and in different sectors.

Finally, do what you feel is right for you. If you can get a good night’s sleep with a risky portfolio, then more power to you. But if you don’t feel comfortable with this approach, then adopt one that is more conservative.

What are your thoughts on how aggressive you should be with your retirement investing?

David Bakke is a contributor for Money Crashers Personal Finance, a blog that covers financial topics like investing strategies, budgeting, and retirement planning.