In all accounts, investment allocation should match the investor’s appetite for risk and the time horizon of their investment.
The higher the appetite for risk, the farther up we can move on the efficient portfolio frontier (the optimal return for a given level of risk) and the riskier our portfolio of investments should be. Likewise, the longer time horizon that an investor has to save for a particular goal, the riskier the portfolio can be because the investments have a longer period of time to recover from negative market fluctuations.
Investment advisors weigh these two axes of risk appetite and time horizon in constructing an appropriate portfolio for clients. For example, an emergency fund might be needed in the near-term. Even if our investor has a large appetite for risk, the need for stability in that fund is high, so it should be invested conservatively. Conversely, a conservative 30 year old investor’s IRA should still be invested in riskier securities because the timeframe to recover from any negative market event is very long.