How do you go about developing an investment strategy? Here are four steps:
Step 1: Determine your goals. As in any aspect of life, your financial goals will drive your investment strategy. Whether you are planning for retirement, a child’s college education, or a vacation, you have to know what you are working toward.
If your goal is retirement, for example, what does that look like? A five-star luxury tour of Europe and around-the-world cruise? Or visiting the grandchildren down the street? For your strategy to be successful, it has to be founded on a concrete, detailed articulation of what it’s designed to achieve.
Step 2: Examine your financial profile. This is a great opportunity to get a detailed view of your finances ─ your income, your debts, your assets, your budget, and your existing investments. It will help you learn where you are relative to where you want to be and allow you to develop a strategy to get there. If you have mounds of debt, your first priority may be to pay those off. If your finances are in order but you don’t have an emergency fund saved, that may be your first priority.
Once you know what you have to work with, you can better achieve your goals.
Step 3: Analyze your investment appetite. Are you a conservative or aggressive investor? Aggressive investors are willing to accept the potential of substantial financial loss for the potential of substantial financial gain.
Conservative investors are willing to accept smaller financial gain for lower risk of financial loss. Whether it’s more appropriate to be an aggressive investor or a conservative investor depends in part on where you are relative to your goals.
For example, if your goal is retirement, it is generally more appropriate to invest aggressively when you are younger and further away from that goal. It is generally more appropriate to invest more conservatively as you get closer to retirement, pulling your money out of higher-risk investments to avoid losses that your investments don’t have time to recover from. Are you striking the right balance?
Step 4: Be advised. Seeking counsel from a credible financial advisor will help you make the best investment decisions based on your goals, your financial profile, and your risk appetite. A financial advisor will ensure that you are getting the most from your investments and that your money is allocated properly, helping you rebalances your profile every year.
In addition to having expertise in the different types of investments and a deep understanding of what’s going on in the market, advisors are also not emotionally attached. This can be invaluable in keeping you aligned with your strategy, especially when the market is fluctuating.
Like a good map, an investment strategy will help get you from point A to point Z on the road to achieving your financial goals. To develop a strategy, revisit an existing one, or for help getting back on the road, please call.
Copyright © Integrated Concepts 2012. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.