Have you heard the rumors, the buzz?? Here you are working away on your investments, spending so much time feeling confused or wondering if you are doing the right thing.There are jargon-filled documents lying around. You feel a little guilty, knowing you should be reading them, absorbing the detail, making informed decisions on … oh what was that again? Then people like Christine Benz at Morningstar and Harold Pollack at the University of Chicago come along and go, hang on, let’s get all this planning and strategizing down on a 3 x 5 index card. What? Why?
Actually it is not as crazy as it sounds.
Let’s face it, investing is complicated. There is so much information out there that you can be overwhelmed by it all. It becomes a balancing act; financially between risk and reward and personally how much time are you really willing to spend on it. It can feel too big to deal with. So that’s why what these guys are saying makes a lot of sense. Break it down to what you really want to get from your investment portfolio. Simplify your goals and strategy to their core essence to create a simple investment plan. Remind yourself why you are doing this …
It’s all about simplification. Something we all need more of. So think of it like this. Imagine if you can explain to your indifferent partner, spouse, son or daughter, your goals and investment plan with a simple index card. Imagine the look of relief on the face of your uninterested loved one when they realize they are not in for several hours but a few minutes. And, guess what, if you do it well and keep it succinct, they will get it. And them getting it might mean a whole lot less stress if something happened to you and someone else needed to take over. Now there is a bonus.
Another bonus. It might even clear your mind too. Help you move away the distractions and the overwhelming amount of information inundating us every day. A simple investment plan helps you figure out what you are really doing this for, the outcomes you want, and how you are going to get there. Doing this index card thing may well help in all sorts of ways.
So that is all good. How do we go about doing this, breaking it down, simplifying, getting it clear? Let’s start with my investment plan.
My investment plan on an index card
The handwriting isn’t the best, so here is a text version of it:
Goal: Build a low-maintenance, low-cost, high-growth investment portfolio that will create financial independence in 20 years.
- Use low-cost mutual funds to build a globally diversified retirement portfolio based on sound academic evidence.
- Monitor my portfolio every 3 months and rebalance when any investment is more than 5 percentage points away from its target.
- Invest 20% of income into my retirement portfolio.
- Know the risk level in my portfolio and the risk level both my spouse and I are comfortable with; make sure they match.
Time to write your own version
Here are some questions to ponder and links to helpful articles to get you started.
What is your overarching investment philosophy?
Do you believe that there are skilled investment managers that can pick the right stocks and beat the market? Are you willing to pay for that? Actively managed mutual funds are typically 10x the cost of passively managed index funds.
What kinds of investments do you want to use to achieve your financial goals? Individual stocks, mutual funds, ETFs, alternative investments, options, etc?
Where will you do your research? Morningstar? Subscription-based research tools? Newsletters? A Financial Advisor? Your brother-in-law?
How will you monitor your investments? Can you quickly and easily see everything you own in one place? If not, give our powerful tools a spin.
Will you manage your investments as a single household portfolio (more tax efficient), or will you manage each account isolation (less tax efficient)?
Do you know how much risk you can handle? Find out with this simple questionnaire (takes less than 1 minute to complete).
Now it’s your turn
Use this guide to create your own compact investment plan. Get in touch if you have any questions.