Investment Planning in Five Steps
David and Abby never really bothered with an investment plan, and they paid a steep price for their indifference. A well-structured investment portfolio requires a planning process of developing and setting realistic goals, identifying return objectives, diversifying risk, and monitoring investment performance. There are five key steps that should be part of the investment-planning process: draft an investment policy statement; assess the applicable risk factors; determine the appropriate asset allocation; select the right investment vehicles; and monitor and adjust the portfolio as necessary, including through a regular rebalancing discipline. Common investor mistakes to avoid include not having a plan, overconcentration in company or other securities, attempts at market timing, and performance chasing.