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3 Ways to Execute Your Investment Plan
By Ron DeLegge, Editor
August 31, 2011
Investing without an investment plan is like shooting in the dark. Yet, a large number of investors are doing both. Why does it matter? Because operating without an investment plan only increases the odds of failure.
Let’s analyze three keys to having a successful investment plan.
Cultivate a Disciplined Savings Habit
A consistent and disciplined savings habit is the lifeblood of all thoughtful investment plans. Without money, there’s nothing to plan for.
While the exact amount you decide to save is a personal decision, it should be based upon your unique financial circumstances. For example, individuals with higher incomes should most definitely be able to save more compared to individuals with lower incomes. Likewise, individuals with lower incomes should not use their limited resources as an excuse to self-pillage.
Saving is a form of self-respect and people that don’t save are penalizing themselves. Excuses like, “I can’t afford to save because I have too many bills,” don’t count. Everyone has bills, but following through on a realistic savings plan is one of the keys to minimizing their burdens.
Invest Realistically not Fancifully
“My goal is to have compounding returns of 25% just like Warren Buffett,” is not an investment plan. Why? Because one of the key ingredients to a plan is that it should be realistic and reasonably achievable. Expecting Buffett-like returns (NYSE: BRK-B) is neither.
The best strategy for most people is to own low cost index funds or ETFs that cover a broad spectrum of asset classes. This includes bonds (NYSEArca: LQD), U.S. stocks (NYSEArca: VTI), emerging market stocks (NYSEArca: EEM), international stocks (NYSEArca: EFA), TIPS (NYSEArca: GTIP), commodities (NYSEArca: DBC), real estate (NYSEArca: RWO), and cash.
A well drafted investment plan should map out the exact percentages of each of these investment to be allocated inside your portfolio. It should also tell you how often to rebalance your investments.
Execution
Here’s another detail I almost forgot to mention: Your investment plan should also explain how long it will take you to reach your investment goal. Again, make sure your timetable and your objectives are in agreement. For instance, having a goal to reach $1 million in ten years by saving $50 per month is not going to happen.
While your investment plan does not need to be elaborate, it should definitely be achievable, realistic and tailored to your personal needs. ETFguide's Ready-to-Go ETF Portfolios have been helping investors to build and manage simple portfolios.
Finally, the best written investment plan is useless if you don’t follow through on it. In this regard, I have three suggestions: Execute, execute and execute! |
