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5 Tips For Creating A Solid Investment Plan

By Silicon Valley Blogger in Investment

investment plan Are you ready to invest? Make your market moves before the market does.

I've always had a hunch that I had a medium risk investor profile, even before I took a risk profile test or two. Well it's been confirmed that I'm most comfortable with a moderately aggressive portfolio, which means I can possibly stick with a solid mix of stocks and bonds without flipping out during rocky market periods.

Though my stomach was tested recently, the constitution of our general investments coupled with my relatively optimistic expectations of where the market was headed, allowed me to relax throughout the volatility.

Whereas, I had co-workers who expressed concern over the steep one day stock market drop of a few weeks ago, who've asked me what they should do. I've also received calls from friends who simply asked: Is this a good time to buy now?

Hopefully, I can answer those questions by sharing with you some tips on how I've handled my own investments.

Strategies For Developing Your Investment Plan

 

#1 Do not react to the market. Be proactive instead.

Make your investment moves before any major market action takes place. It's best to have a good plan on paper before executing it, and it's best to execute it during a time when the market isn't dancing around wildly. Get the answers to these questions before you invest and make it a part of your plan:
o What are your investment goals?
o What is your risk tolerance? Evaluate yourself or take some tests to find out!
o What is your time horizon?
o What does your tax situation look like?

Replies to these questions can help point you to the right types of investments. Anticipate some possible market moves and know what you'll do before something big happens!

 

#2 Take investment positions in your portfolio when the market is stable or depressed.
Whenever I build a position in my portfolio, I always try to do so when the market is level or weaker. I prefer not to buy during strength or powerful up days and I definitely try not to chase returns. That isn't to say that buying while the market is going on strong is a bad thing or even a wrong move since momentum can certainly take you far. In the long run, it may not hurt you to buy during an upswing. But I tend to be a contrarian and I like capitalizing on weakness, where there could be more opportunity. Others may disagree with me but this is what I'm comfortable doing. In investing, you can certainly make money through different investing styles, and I've so far stuck with what's worked for me.

 

#3 Create a core diversified portfolio.
Build a strong foundation for your investments by creating a diversified portfolio of your core holdings. You can do this by assembling your own portfolio by choosing mutual funds and ETFs across various conventional asset classes such as equities, bonds and cash. Figure out what types of asset classes you'd like represented and what percentages they should represent in your mix. Then settle on some good fund families with experienced managers and purchase shares in their funds. Take note of the management style, fees, tax ramifications, performance history and actual securities in the funds you consider. Such a portfolio needs to be in line with your risk profile so you can sleep well and be assured you're doing the right thing.

 

#4 Add some ooomph to your portfolio.
Maybe you need to try some hedging techniques. Maybe you need to develop a portfolio that includes alternative asset classes to add more diversification. This can be achieved by adding negatively correlated asset classes to your mix. You may need some expert help when trying this out, so research and learning are key when you've decided to go this route. I'm in the process of researching options in this area myself. For now, I've started by reviewing material in The Sun's Financial Diary and My 1st Million At 33 to see how these folks have tackled investments beyond the standard equity/bond combinations.

 

#5 If you'd rather not create or self-manage your own portfolio, buy into a preassembled one. There's quite a number of mutual funds out there that can be considered as "one stop shops". The purpose of such funds is to try to take the guesswork out of selecting diversified investments by keeping strict allocations that in some cases, conform to targeted timelines (depending on the type of fund they are). Some examples are:
o Balanced Funds (aka Hybrid Funds, Asset Allocation Funds)
o Life-Cycle Funds (aka Target Retirement Funds)

However by settling on such funds, you lose flexibility and control over your investments for by definition, the funds do their portfolio shifting on their own. So be aware of these caveats when buying into these funds; remember that you're buying convenience and hiring someone else to worry about your allocations for you.

With these ideas, you should be on your way to starting your own investment plan. The bottom line? Have that plan BEFORE you make your moves or dip your toes in the market so that once the market behaves like a wild beast, you'll know how to ride it.

 

 

Ref : http://www.thedigeratilife.com/blog/index.php/2007/03/22/5-tips-for-creating-a-solid-investment-plan/

 

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