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Write it down

Investing 101: Work Your Plan

By Austin Pryor
Sound Mind Investing

CBN.com – A cornerstone of the Sound Mind Investing philosophy is that your investing decisions should always be made on the basis of a personalized, long-term strategy.

To emphasize its importance, I make the point repeatedly and in various ways. In my view, it’s such a crucial concept that I covered it in the opening pages of my book:

In order to find peace of mind in your investment decisions, you need to become an initiator rather than a responder. Initiators have a concrete game plan in mind. They have made the effort to develop a strategy that specifically takes into account both their long-term financial goals as well as their own personal investment temperament. It is shaped around what they hope to accomplish in the future, and it fits who they are “inside.”

Make it your goal to become an initiator! Be like a shopper at the food market who buys only those ingredients needed to prepare a specific recipe.

Before she goes to the supermarket, Lynn knows what she is looking for. When she is confronted with special promotions for products that aren’t on her shopping list, she readily passes them by. Lynn won’t need to spend any time at all considering whether to buy them because her shopping is purposeful. Similarly, before you begin to invest, put together a strategy that takes into account the risk of loss you can comfortably carry both financially and emotionally.

I want to state clearly what is only implied above: Your plan should be in writing. If your intentions are not down in black and white, with specifics spelled out, they need to be.

For example, who would you say is more likely to realize his dream of taking the family (grown kids and spouses, all the grandkids, the whole clan!) to Bermuda for a two-week vacation? There’s Jack, who says he has every intention of doing it someday, and there’s Tom, who talks about doing it in 2008 and can show you the cost estimates he’s collected and the written savings plan he’s started, which is going to pay for it all?

A written plan will also make sure you don’t forget to undertake all the important steps along the way. I’ll tell you one about myself and you can have a good laugh at my ineptitude. A few years ago, I deposited my annual SEP-IRA contribution at Vanguard in order to deploy it in our Just-the-Basics index-fund strategy. But the market seemed overvalued at the time, so my “plan” was to wait until the S&P 500 fell below its 52-week moving average and invest at that time. Meanwhile, it could earn interest in the money market.

I was serious. I was committed. But I didn’t put my plan in writing. Why bother? Hey, I teach people how to do this stuff. I certainly knew the steps that were needed. But guess what? — when the event I had been waiting for finally happened, I was busy working on a variety of SMI projects and completely forgot about it. It just totally slipped my mind. The window of opportunity closed and the market rallied furiously up through year-end. When I later realized what had happened, the Vanguard funds I was going to buy had already gone up 15%-25%. Oops!

So, it’s easy to procrastinate, and it’s easy to forget. If it’s not in writing, it’s merely an idea, a good intention. So develop your plan and write it down. Keep it visible. You’ll be tempted to deviate from it — like when your brother-in-law calls with a hot stock tip, or the new car models come out and you’d rather spend than save. But don’t do it. Hold yourself accountable for carrying it out as planned. Stay the course.

Not sure how to develop a personal investing plan? The Sound Mind Investing newsletter can help. Use the link below to learn more.
 

In our Sound Mind Investing newsletter, we try to regularly emphasize why we are here serving you in this way: We want to help you to have more so you can give more to share the good news of Christ's love with the world.

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