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Investment Steps

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Since I decided to post these in the spur of the moment, I imagine that I might have missed something, but I think these steps might help people to make wiser investment decisions, including not being caught off guard by fluctuations of their portfolio and not re-setting their expectations to higher (and less probable) returns after periods of higher returns.


Step One: List your investment goal(s) broadly and specifically.


Step Two: List your investment time horizon(s).


Step Three: Determine and list your asset allocation for each investment goal and time horizon, your expected returns (worst, best, average, median, etc.), and the range of fluctuations you expect in the ensuing time frame.


Step Four: Determine how various possible returns will affect your final actions.


Step Five: Implement your strategy for each goal and time horizon.


Step Six: Before you monitor the progress of your strategies, always take out your list from Step 3. Monitor progress in light of Step 3.


6a. If new data shows that your worst expected returns may be lower than your stated worst expected returns, then re-evaluate your plan.


6b. If your fluctuations are in line with your expected fluctuations, maintain your expectations. Be careful not to revise your expectations upward due to higher than average returns or revise your expectations downward due to lower than average returns.

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Very good. Especially your last statement.


Expectations are very emotional, if your portfolio goes higher than the market, lower your expectations (because you are a victim of over confidence. Likewise if your portfolio loses more than your expectations, for heavesn sake, don't panic and sell everything. Depending on your time horizen, hang in there and wait till the market recovers and then diversify so that you are taking only as much risk as your goals stipulate.

This is very difficult to do, but I am not recommending this just because I say so, I have lived it.


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