Your First Step in Developing A ‘Personal’ Investing Plan

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Investment Plans: Step By Step Guide

Investing Plan Step One: Know Thy Self

Often when it comes to investing people’s first reaction is to ‘outsource’.  They think they need to find someone who is a profession financial adviser, go somewhere to meet a financial adviser, or talk to someone who can take what they have and multiply that investment.  When it comes to investing, we typically first look at outside sources.

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Two False Investing Assumptions:

  1. We falsely assume financial advisers who post the biggest returns are exactly what we all need.

As an illustration, many people think of investing this way:

One would think a football quarterback would just need to find the fastest running back in the league and give that person the ball.  We do the same thing financially, we scour the financial track records, ask friends and acquaintances, for a person who has given them “a great return”.  Assuming somehow the key to great investing is ‘out there’.

This can be an extremely dangerous approach to investing.  Instead, you need to study yourself (the most important component in any investing decision) and then tailor your investment strategy accordingly.

Thus, we falsely assume that good investing is all about the returns.  Good investing is, instead, investing that respects your risks, values, advances your goals, and is aware of your timeframe.

2.  We falsely assume that investing requires unattainable expertise knowledge for the average person.  Thus, your choice is either to become an expert the the field or hand off the investing.  – so many of us hand off the investing decision.  Good investing, however, is investing you understand.

In both of the above examples we see that good investing involves knowing yourself.

What You Need To Know Before Establish Your Personal Investment Plan

Investments are not one size fits all.  There is no such thing the best investments for everyone.  Investment possibilities differ from person to person.  You need your own investing plans.

Here are things in the investing world that differ from person to person:

  1. Investing goals. Often we have an amount we wish to save.  That amount might be an actual number, (i.e. $10,000 for kids’ college) or a general amount to cover a purpose (i.e. enough for kids’ college).  Obviously the more specific one can be the better.
  2. Investing purposes. You might have some money for a car purchase, some money for kids’ college, and some money for retirement.
  3. Investing time frames. You might have some money for a car purchase in two years, some money for kids’ college in ten years, and some money for retirement in twenty years.
  4. Investing risk levels.  You may think the worse possible case would be to lose 10% on an investment while another is fine with a 20% loss.  As such, you prefer less volatility in exchange for smaller returns while another is willing to accept more volatility in exchange for greater returns.
  5. Investing knowledge and experience.  You may be a person who has never purchased a mutual fund before, or you may trade individual stocks daily.
  6. Investing values. One person may be comfortable owning a mutual fund that has a small percentage of a questionable stock holding while another might be absolutely against such a possibility.

So when you decide you want to enter the investing field, be sure you look inward before looking outward.

Questions To Help Set Investing Goals

Know the answer to each of the following questions before you seek outside guidance:

  1. For what purpose are you investing the money?
  2. How much do you want to invest?
  3. How long will it be until you need the money?
  4. How much money will you need/want when your time frame for the investment ends?
  5. Knowing what you know about investing today, how much risk (1-10) are you willing to take?
  6. Are you willing to educate yourself about investing?
  7. Do you have a general idea of what your best investment is?

At this point at least you can consider looking for someone to help you with your investing.  And throughout the investing process remember, no one knows you better than yourself.

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