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Principle 10: Develop a Good Investment Plan and Follow It Closely

Develop a good investment plan that is consistent with your goals, your budget, and the principles discussed in this section; follow this plan closely. An investment plan is a detailed road map of your investment risk and return, constraints, investment strategy, and reporting and evaluation methodology. For an example of preparing an investment plan, see Learning Tool 5A: An Investment Plan Example in the Learning Tools directory of this website, along with Learning Tool 5B: Investment Plan Example Instructions.

Your investment plan outlines the amount of return you are seeking and the risk level you are comfortable with for investments. This plan documents constraints, such as taxes, liquidity, and time horizon, that affect your portfolio. It details which asset classes you will or will not invest in and includes your view on active versus passive management. It lays out your plan for the percentage of gross income you will invest each month, the amount you will invest in each of your chosen asset classes, the maximum percentage of your assets that you will invest in any single new investment, and the ways your strategy will change as you get older. Finally, your investment plan discusses how often you will rebalance your portfolio and how often you will report the portfolio performance to others.

Think of your investment plan as a road map to successful investing. Create a plan that is consistent with the principles discussed in this website, and you will do well. If you plan wisely and invest accordingly, you will save yourself from heartache and problems in the future, and you will likely achieve your personal and family goals.


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