Never Invest Without A Plan
ACTION REQUIRED FOR EVERY INVESTOR:
In every industry there are best practices to help minimise risks and increase efficiencies, and the world of investing is no different. If you study to become a financial planner or trader you learn some of these best practices. I will share with you some of these best practices so you too can use these to help manage your portfolio and think logically about your investments.
The first rule of investing is to have a plan. If you do not have a plan you do not know where you want to go or how well you are doing. The plan must include financial goals which includes:
- STARTING INVESTMENT AMOUNT.
- DESIRED FINISHING AMOUNT.
- TIME IT WILL REALISTICALLY TAKE TO GET TO YOUR END GOAL.
- WHAT ASSETS YOU WANT TO ACCUMULATE.
- WHAT EDUCATION WILL YOU TAKE TO LEARN MORE ABOUT THE ASSET CLASSES YOU INVEST IN.
Everyone has a different starting amount in which they can invest and this is okay. If you know where you are starting from you can more realistically see how long it may take to get to your end goal. Even if you have $100 or less to start investing you can still begin, thanks to the Electroneum mobile miner.
The second part of the plan is to set your desired finishing amount. There is no point in investing and looking after your portfolio if there is no reason as to why you are doing it. There are two ways you can choose this figure, first you can choose a set amount you want to earn off investments in yearly period. This method is for those who want to expand their cashflow from year to year. The second method is to grow the portfolio up to a set amount and use it as a lump sum.
When figuring out what your amount is remember to consider your desired lifestyle and how much that will cost, think of any future medical expenses that may occur, if you have children think of how much you want to help contribute to their education. There are more things to consider but these are just examples to start with.
When it comes to time it will take to reach your goal you need to be realistic. If you are starting with $100 to invest and you invest in something, do no expect to be a millionaire in 3 months. To put things into perspective the stock market grows around 7% a year so that $100 could be $107 by 1 years time in this example. While crypto can see much faster gains you still need to be realistic.
When it comes to the breakdown of your portfolio you want to consider if you want passive income or capital growth or a hybrid approach. From using your answers to part 2 and 3 you can figure out what assets may be the best to use in your portfolio. The asset classes are CASH (cashflow), BONDS (cashflow), SHARES (cashflow & capital gains), PROPERTY (capital gains & cashflow), PRECIOUS METALS (capital gains), COMMODITIES (capital gains), CURRENCIES (capital gains) and CRYPTOCURRENCIES (capital gains).
There are also derivatives but these are leveraged contracts that are traded based on the price of an underlying asset from one of the asset classes above. Derivatives are very risky and you can lose more than you invest so these should only be considered by highly skilled investors with a deep understanding of the market and who can absorb the potential losses.
With each individual asset you buy or want to buy you will need to work out your BUY PRICE (best price to buy, so if the price ever hits that point you buy regardless of market conditions), your SELL PRICE (price you will sell at regardless of market conditions), and your MAXIMUM HOLD DURATION (how long are you prepared to hold). Working out these are crucial for each asset. You cannot get emotionally attached to any asset, even if you love what the asset is. If the price hits your sell price then you sell so you take the profits and can reinvest in something else that may be at your buy price for that asset. If you want to go back to the asset you just sold later on you can work out your new buy price so if it drops to that point you can buy back in.
Remember that an asset has not made a loss or gain until you actually sell it. Having these plans helps you act smarter as it lessens the emotional response.
Planning your education to learn more about the assets that you invest in will increase your knowledge of the fundamentals of that asset. The more you know about an asset class the more you can minimise risk so you can potentially have more winners than losers.
You will never have a flawless portfolio. You will invest in duds occasionally. As long as you invest in more winners over time than losers you will keep moving forward. Warren Buffett has made many mistakes but he keeps learning and improving.
I hope this helps you all as having a plan in place can remove the FUD as you will see your assets in a more rational way.