Tahoe-Truckee Market Beat: Making investment decisions – have a plan
When making investment decisions, it is very important to have a plan and follow it.
Successful long term investing is relatively simple, but not necessarily easy. It’s not easy because emotions can get in the way. Money can be a very emotional topic for people; you have to deal with feelings like fear and greed.
One step is learning to separate the things you can control from things you can’t control. You can’t control the stock market, but you can control your personal investment strategy. You can decide how much to save and how much to withdraw, as well as to control the right asset mix for you.
Did you know that all-time basketball great Wilt Chamberlain shot his free throws underhanded for a while? According to Malcolm Gladwell, in the 1961 season he shot a career best 61% from the free throw line while shooting underhanded like Rick Barry did.
Chamberlain switched back to a traditional free throw style and did not shoot as well, but said he felt like a “sissy” when shooting underhanded.
If you know something works better for you, stick with the system that delivers the best performance. Some people tend to make bad investment decisions that can have a huge long term impact on their finances.
There are a few simple steps that will help most investors achieve their goals. For young people it is critical to start saving early. Save early and save often is the rule. Use a tax favored account like a 401k or an IRA, if you don’t have access to an employer sponsored plan.
Understand your investment expenses. Choosing investments with low expenses like index funds can have a substantial long term impact on your performance and it is certainly something you can control.
You need to understand your expense ratio and evaluate it. If you’re getting sound investment advice and help making important financial decisions, it may be worth it to pay a fee.
It’s important to understand what you’re paying and what you’re getting in return for that fee. A difference in long term return of one percent can make have a huge impact over time.
Manage risk by diversifying. It’s important to diversify your holdings across major asset classes and adjust the mix as you age. The younger you are the more important it is to have money in stocks so you’ll be able to outpace inflation.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.