I’m going to walk you through how to make an investment decision using a few leadership points from Forbes’ contributor Jeff Boss. And some from me.
Set a ‘Drop Dead’ Date
Christmas comes once a year. It’s on everyone’s calendar and you know it will happen. You have 364 days every year to get ready for it. So what do we do? We wait until late November, hit the Black Friday sales, cram as much partying in as we can, open gifts, then collapse into exhaustion.
Because we have a ‘drop dead’ date for this event every year, we know that we have to prepare, even if we do it all at the last minute. Investing may be the same way. Do as much preparation as you can and then implement your plan. Then you can think about it again next year.
Get a Sanity Check
Suppose you are a new air traffic controller. You notice a fast moving storm coming in and there are several planes stacked up to land. Number seven is running low on fuel and number twelve has a non-threatening but urgent medical emergency. Who lands first? Certainly you will want to ask for advice, but would you ask the stewardess? How about the baggage handlers? The airport manager? While all of these people have skills that are important to air travel, you would probably want to ask an expert – another air traffic controller.
The same holds true for investing. You may do very well with your investments, or they may terrify you. Either way, if you have questions on how to invest, you should ask an expert – a financial planner. Feel free to check in with your neighbor or your coworker, but use a professional to help you make the best decision.
Curb Your Curiosity
You’ve heard it a thousand times – curiosity killed the cat. There are a gazillion investments available to build portfolios. If you research them all, you will never get around to actually investing in something. Determine your time horizon and the level of market volatility that you are comfortable with. Find investments that fit your parameters. Implement and move on.
Recognize that the Moons Will Never Align
There are 50 older adults coming to your party. You have narrowed your choice of venues down to two. One will hold only 40 people and is 10 minutes away, and has only one bathroom. The other is over an hour away but holds 60 and has multiple bathrooms. Which do you choose? Sometimes, you have to make the best decision you can based on the information you have at hand. Sometimes, you won’t be able to get everything you want.
This is true for investment decisions. You have to make the best decision you can with what you know, and when circumstances change, make adjustments. A ‘buy and hold’ strategy is not the same as ‘buy and forget’. Always go back and review on your ‘drop dead’ date each year.
Stair Step Your Decisions
Often, it is easier to make investment decisions one step at a time. For example, maybe you decide that a portfolio of 60% stocks and 40% bonds suits your risk tolerance. Great – that’s step one. Then, you decide that you want to purchase ETFs. That’s step two. Step three is a decision: do you research each individual ETF, or do you have a financial advisor do it for you? Step four: decide how much you want to invest each month. Step five: implement your plan and Step six: revisit your plan annually to make adjustments as needed.
Behavior is More Important than the Investment
Carl Richards is my new favorite author. He has a saying: Don’t get simple and easy confused. While choosing the right investment is important, the most important factor that leads to investment success is your behavior. Consistent investing is a far greater gauge of financial success than choosing the right investment at the right time. This all goes back to your budget. Pay yourself first, invest a regular amount on a regular basis and you will find that your investments grow in a manner that will help you reach your goal. Simple, but not easy.
It seems the most important thing to remember is to avoid inertia – an object in motion, stays in motion. So take action and start your investing plan today so you can retire tomorrow.
Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.