When you’re just starting in the investment world, you may think that investing is just a matter of depositing money and buying the stock you want. The truth is that investing is not too complicated, but you need to have a strategy and write out an investment plan.
As time goes by, our brain tends to play tricks on us, especially when it comes to decisions we made in the past. This concept is especially true of the investment market. After all, your choices might change or grow, and you’ll want to know where you started.
It’s always fun to notice the prices you buy a stock at and the amounts they grow over time. For example, if you had invested in AMD in the early 2000s, it might be pleasant to know that you bought that stock for about $7 a share, and now your AMD earnings are well over $75 per share.
The stocks you invest in will depend on your goals and your risk level. If you need money in a few years and don’t want to risk too much, then that will influence your plan. A year later, you might have changed your plans and be willing to take a few more risks. Just remember, diversification is key.
The amount you save is really up to you. Financial experts recommend around ten to fifteen percent of your income, providing you start saving right away from the point of having your first job. However, you might want to look at your plan year after year, to see how your savings rate can put you on track for your goal or not.
It Functions as a Guide
Writing down an investment plan can give you a guide to follow. Plus, it can prevent the emotions of greed and fear from overcoming you at critical moments in the life of your investments. Even a one-page investment plan can be beneficial, and it doesn’t take a long time to write out. Here are a few reasons why your written intentions may come in handy in the future.
Keep from Being Your Own Worst Enemy
As an investor, you can be your own worst enemy. Low points in the market might mean you experience painful losses and cause you to be tempted to sell. But selling might mean missing out on future gains. One of the biggest mistakes beginner investors make is selling too soon.
By the same token, when the market is at higher levels, it can often be too easy to miscalculate the risk and keep the money there when it is time to sell. It can be easy to forget what economic intentions were when you first started in the financial market.
It’s Just One Page
Writing down an investment plan doesn’t have to be time-consuming. It doesn’t have to be involved, and you don’t even have to have the correct wording. It can be just one page.
Update Your Plan
Once in a while, review your old plan and make changes to the one-page plan you had. Keep things simple. Develop your strategy based on a few questions.
What are your financial goals?
How much do you plan on saving each year?
How do you plan on investing your money?
Your goals might be as simple as trying to save money for a future event or as complex as not having to work by the time you’re fifty. On the other hand, you might have something concrete, like you want to save two million dollars by the time you’re 40. Whatever your goal is, please write it down and review the plan every year. This plan will keep you on track, and it will be fun to see what the differences are from year to year.
When Should You Withdraw Money From Investments
Again, this decision ties back into your one-page investment goal. If you are saving for retirement, you shouldn’t take the money out before then.
Put All of the Ideas Together
The answers to the above questions and the ensuing tips can help you make your plan. Of course, an investment plan doesn’t have to be perfect. But a plan always puts you in a better position than when you have no plan at all.