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I’m always amazed when people come and ask me to help them with investment management.  They almost always forget the first part of the equation.  The first step is having a financial plan in place.

Financial planning doesn’t give you a final answer.

You’re not going to do a financial plan because it’s going to give you a final answer of what’s going to happen in the future.  You’re going to do it because it helps you know whether the big questions are being answered.

I have a client who would call me about every three weeks wanting to re-do his financial plan.  He was just incredibly nervous about retirement and whether he was going to be able to retire when he wanted.

He happens to own a business.  As a result most of the success of his retirement plan is dependent on his business.  The only way we were able to get past his nervousness is through the financial planning process.  The financial planning process allowed him to know that his business needs to be successful for his goals to be reached. 

The most important part of an investment program is how much you save.

Just like my client, you’re success in your investment program is really going to start with this questions, “are you saving enough?”  This is where a financial plan helps.  When we run different savings and return scenarios you get a chance to see what your future might and I do emphasize might look like.

I find that a difference in two or three percent increase in investment rates will make a difference.  At the same time the difference won’t be nearly as big as saving the right amount of money.  Saving $500 a year won’t get you to a retirement goal.  On the other hand saving $500 a month just might.  In either case, we’re not going to know the answer till we do a plan for you.

Do you have separate buckets for money you’ll need?

Another danger I see in investment programs is treating all of your money the same.  I bet you have some goals where you’ll need money in five years.  There are probably other ones where you won’t need your money for twenty years or more. 

Let’s think about this for a second……  Do you really think you should invest your money in the same way for a goal that’s five years out as one that’s twenty or more?  This is where a financial plan helps.  We can test what different investment strategies might do over the time frames that you actually need the money.

Make sure you don’t look backwards.

Don’t chase returns.  There, I’ve said it.  The biggest mistake investors make after not saving enough is going after the hot investment.  If you don’t stay with your investment plan and chase whatever the hot returns are, you face the strong possibility that your goals won’t be hit.

This is one of the reasons that the average investor doesn’t do well.  They chase whatever was hot and that investment becomes one that isn’t doing very well.  Remember the tech bubble of 1999.  We couldn’t get enough and then pop, we still aren’t back where we were then and it’s fifteen years later.

Great investing is about choosing inexpensive underlying securities and then using asset allocation to help you improve the chances of success.  This along with a good financial plan will help more than chasing the hot investment.

Success is often about the basics.

Like most things in life, investing isn’t very complicated.  You make sure you’re saving enough money and you have an asset allocation that will serve you well in good times and bad.

I can promise you one thing.  I have no idea what asset class is going to do well.  I bet you don’t either.  Don’t let emotions get in the way of you achieving your investment goals.

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Topics: financial planning, investment management, creating value

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