Every investor is unique, with different goals and aspirations. So one of the first things to do is to think about what you, personally, are investing for.

Are you putting money aside for your children’s education? Are you saving for your retirement or just a ‘rainy day’?

Always keep your own circumstances in mind when picking a fund and remember to look at those that are suitable for you, not just those that happen to be popular at the time. What is right for one person is not necessarily right for another.

Generally, the longer the time horizon before you need to realise your investment, the riskier you can afford to be (although obviously your personal attitude to risk is key).

For instance, if you are saving to pay off a mortgage, you may wish to have a higher risk profile in the early years when your investment has 25 years to run, but in later years a lower-risk strategy would be appropriate.

Don’t forget that an ISA investment should be considered as a medium to long-term investment. If you hold an investment for a longer time period, any risk of loss declines.

Risk is very personal and what one investor may consider high-risk could be medium-risk to another.

So when choosing a fund it is important to be honest with yourself and consider how much risk you are willing to take.

A good question to ask yourself is: “How much can I afford to lose in the short term?”.

Different funds will have different risk profiles. For example, an emerging market equity fund will be deemed higher risk than a strategic bond fund. But within each sector, different funds will have different risk profiles too – one emerging market equity fund may be more risky than another.

Chelsea’s fund research team provides a Chelsea Risk Rating – a generic guide to the relative risk of more than 400 of the funds available to investors. Read our page on Risk here.

Funds assigned a 1 are considered as the lowest risk and 10 the highest. However, it is important to remember that even funds rated 1 are subject to some risk.

One of the ways to reduce the volatility of your portfolio, apart from selecting funds with a lower risk rating, is to diversify your holdings. The greater the spread of funds, the more you reduce your risk. However, spreading your assets across too many funds means that those which perform strongly will have little impact on overall performance.

Once you have in mind your goal(s), time horizon and attitude to risk, you can think about the asset class in which you wish to invest. For example, you may want to consider equities, bonds, property, commodities or a combination.

If you are adding to an existing portfolio of funds, consider what effect any new fund will have on the overall balance of that portfolio. Will it make your attitude more aggressive or more cautious? Will it mean that you are over-exposed to a certain asset, market or sector, or will it be filling a gap?