Investing Building Block #1: Have A Plan
This is the first in a series of postings where the focus will be around investing. We will touch on some of the core building blocks of investing. It may be a reminder for many of you or new to some, but if you find these useful, please share it with others. Whether you are a veteran of the financial markets or starting out and possibly putting together an investment strategy for the first time, foundational principles are worth reviewing.
For many, investing is uncomfortable because there are so many aspects of investing we cannot control, like the stock market and how it reacts and responds to news, many times in a dramatic fashion. We understand to achieve the highest returns requires taking on risk. Behavioral economics has found that investors suffer the pain of losses twice as acutely as they feel the joy of gains. So, when the market falls one day by 100 points and the next day rises by the same amount, we may be even financially, but, emotionally, we have taken a hit. That is why it’s essential to have a long-term investment plan that is best suited for you considering your financial resources, your spending plan, your time horizon, and your ability to stay the course, i.e., your risk tolerance.
Without an investment plan, we are like a sailboat without a sail. When the market tumbles like it did earlier this year and when volatility reached all-time highs, and your emotions are tugging at you to end this pain and sell out, it’s then that your written plan kicks in. It is then when your investing strategy acts as a guardrail to keep you in the “lane” of long-term investing success so you can stay positioned to capture long-term market returns.
We will address different types of investments in the next posting.