Monday, February 27, 2006

Prepare a Battle (Investing) Plan

As I'd mentioned in my last posting, preparing even a basic investing plan can help to improve your results. Of course, this involves some thought and preparation of what type of investor you are, your age and tolerance for risk, and what you consider acceptable results over time. All of these will have some impact on the type of investments you would like to own.

Generally, the younger you are and longer your investment horizon, the more risk you can be willing to accept. This means that if you're age 30 or below, you should generally be looking to be fully invested in the stock market at most times.

Conversely, if you're 60+, you're probably going to be looking at owning some more conservative investments, including high-yielding stocks, and perhaps some bonds of various profiles. Whatever ... the point is that you spend some time thinking about where you are in your investment life, what keeps you awake at night, and how you think you can best achieve your goals, all things considered.

For instance, my plan this year was a five-pronged strategy and included:
  1. Significant exposure to a few select emerging markets through ETFs,
  2. A number of leveraged stocks (similar to the types I've written about recently),
  3. Continued exposure to the oil and gas theme,
  4. An allowance to buy some stocks based on "value screens" produced by others and,
  5. Plus an allowance to allow me to continue investing in my favorite area - small cap stocks.

The point here is that I stopped to compare to what I did last year, consider the year ahead and what I think might be favorable themes going forward. While I might tinker with a variable here or there, at the end of the year, I think my themes will have been intact, and I can measure my results on that.

I also took one more step that I recommend for others - I wrote down what could mentally and emotionally go wrong with the plan - and if I have "reason" to consider wholesale changes against my plan, then I can go and read what I've already written about danger areas - thus probably comforting me to "stay the course". While my plan won't fit most other people (we're all unique individuals), doing a plan like this will! Good luck with yours ...


The Confused Capitalist

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