For most Americans, building their retirement nest egg is one of their most important priorities -- and most difficult challenges.

A big factor to achieving that goal is constructing a well-designed portfolio. We can't predict the future, so no one knows what the ideal investment plan will turn out to be. However, we can construct a sensible one that is broadly diversified, low-cost, tax-efficient and consistent with your goals and investing temperament.

Such a portfolio will significantly improve your chances of reaching your retirement goals. Here are the key steps to developing an intelligent retirement investment plan:

* Clearly identify the goals for your portfolio. What do you want it to accomplish in the period leading up to retirement, during retirement and after you're gone? In addition to a secure retirement, are you planning to leave assets to family members or a charity? If so, how much do you plan to leave?

* Understand your risk tolerance. This is your willingness to accept short-term losses in exchange for expected, but uncertain, longer-term gains. If you can't sleep at night fearing that a severe drop in the market could cost you a significant portion of your assets, a portfolio that holds a high percentage of risky investments such as stocks may not be right for you. Your risk tolerance affects your portfolio design, so take the time to get this right.

* Determine your time horizon. For many investors, this will consist of

* Establish your asset allocation. The most important investment decision you will make is the portfolio's asset allocation, which is determining the portion of your investable assets you want in the three major asset classes -- stocks, bonds and cash. This decision will determine the majority of your portfolio's performance and risk. Different asset classes have different risk and return characteristics and can respond differently to economic and market forces. Therefore, you can balance a portfolio's risk and return by spreading your investments among different types of assets. This doesn't guarantee a profit or ensure against a loss, but it can help you manage the level and type of risks you face. A sensible asset allocation depends upon your investment objectives, time horizon, risk tolerance and other personal and financial circumstances.

* Diversify through sub-asset allocation and security selection. To further diversify your portfolio, you'll need to select the sub-asset classes and specific funds that offer you the exposure within the specific stock and bond categories you want.

* Determine your asset location. Different types of accounts, assets and gains are taxed differently. Therefore, choosing which assets to hold in which accounts can help improve after-tax returns. Generally, investors should hold tax-efficient investments such as broad-market index funds in taxable accounts, and tax-inefficient investments such as taxable bond funds in tax-advantaged accounts. However, factors such as short-term cash needs and estate-planning decisions can dictate exceptions to this strategy.

* Rebalance periodically. Asset classes perform differently during the year. In order to maintain your target asset allocation and manage your portfolio's risk, you should rebalance the portfolio periodically.

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A retirement portfolio that makes sense