2. Life-cycle approach.

• The accumulation phase is represented by a young person just starting out in a career. Priorities are usually to build up some savings, obtain life insurance, buy a home, and start a family. With a long investment time horizon, large risks can, theoretically, be taken.
• In the middle years, an individual is in a position to start a serious savings program. Discretionary income is generally high and typically, a primary goal is retirement saving. The time horizon is generally still long, although income tax considerations are probably more important than in the accumulation phase. There is usually little need for current income, and the appropriate investment policy is generally one of real growth.
• At the time of retirement, there is usually a need for stable income and risk tolerance diminishes. Inflation protection may be desirable, and typically, the need for investment marketability is higher than in the other life-cycle stages.

3. Investment personality or psychographics.

• Passive investors are inclined to be people who have acquired wealth passively for example by inheritance. Generally, these individuals have low-risk tolerance. Passive investors tend to be risk adverse trend followers, who prefer a well-diversified portfolio. Academic research shows that a large percentage of low and middle income families tend to produce passive investors.
• Active investors on the other hand, tend to have a higher risk tolerance. These individuals typically, want to take control of their financial destiny. Active investors tend to be individuals who have earned their own wealth for example, entrepreneurs. Active investors typically follow a focused rather than a diversified investment policy. As well, active investors often have been raised in middle to upper income families.