Getting an Investing Game plan
These 10 investing principles are integral components of the steps outlined in this book. Use these plays and you’ll be well on your way to creating, working, and winning your investing game plan.
1. Protect that principal.
Hang on to the money you already have. That’s the first rule of investing.
Some loss some of the time is pretty inevitable in the stock market. But
the best money managers limit injury to your portfolio and prevent unnecessary
losses. In evaluating a mutual fund or even the performance of
your overall portfolio, pay close attention to how the fund or portfolio
fared in down years relative to its benchmark. It’s more important that
managers do better than the market on the downside than whether they
outperform on the upside.
2. Be your own benchmark.
Benchmarks like the S&P 500 may hold the public spotlight, but they
must be secondary to your personal benchmark. Focus on what returns
you reasonably need to meet your goals. Knowing your benchmark can
enable you to avoid assuming more risk than necessary. Keep your eye on
your own game, not the one on the next field.
3. Buy and adapt.
A good investing game plan is not rigid. It’s dynamic. Whether we’re
talking about your percentages in stocks versus bonds or your choice of
specific mutual funds, you can’t be afraid to change. Change can be good,
if it’s based on good reasons, such as the Great Bear Market of 2000–2002, a new and untested fund manager, or a sudden shift in your
personal life. Structure and steadfastness are smart. Stubbornness is not.
Just be sure your short-term actions don’t unintentionally undercut your
long-term game plan.
4. Whatever your age, get an offense and a defense.
Age gets too much focus in most financial planning assessments. Just because you’re young doesn’t mean you should be ultra-aggressive and lose all your money. You can never really make up time. In fact, youth is
when you should be growing your money, not losing it. It is the early
money you invest that compounds and grows the most dramatically over
time. At the other extreme, there is no set age at which you can’t afford
some upside risk. Any age can warrant an investing offense and an investing defense.
5. Plan short term for the long term.
The financial planning profession loves a 30-year plan. But the prospect
can be so daunting that it prompts people to give up any hope of planning at all. Avoid paralysis by breaking up your projections into time periods that are manageable for you. A solid five-year plan can be
extremely effective. It guides and encourages you to act now—and now
is the only time that you can invest money for your future.
6. Look at risk as well as returns.
Would you rather have a 50 percent chance at $10 or an 80 percent
chance at $8? Although most people would pick an 80 percent chance at
$8, that’s not how they invest. They don’t pay attention to the risk fund
managers take to get the returns they post. Sometimes $8 is better than
$10, if it means you’re not jeopardizing your principal. Give risk its due,
because the less you take, the better chance you have of not losing
money or at least ........