STRATEGIC INVESTING
- 5 days ago
- 5 min read
I’ve worked with hundreds of investors on their retirement plans. People approach investing in every possible way.
I see conservative investors. I see aggressive investors. I see moderate investors. I see speculative investors. I see confident investors. I see anxious investors.
I see investors who are primarily focused on taxes. I see investors whose focus is capital preservation – avoiding losses. I see aggressive investors who are totally comfortable suffering short-term losses and riding out market downturns.
I see investors who are drawn to exotic and complex investing approaches – options, alternative investments, commodities, etc. I see investors who are big proponents of bonds and others who hate bonds. I see investors who think they can beat the market by picking individual stocks and others who only buy ETFs.
I see investors who depend on financial advisors and others who never use advisors.
Everyone has their own approach to investing. This is a good thing. We value different things and we want different things from our investments.
I am always curious, though, as to how people arrive at their investing style or strategy. I try to understand the beliefs and the information people use to choose their approach. As you might imagine, the reasons are all over the map.
The biggest weakness I see is that most people are not strategic about their investing approach. They take one or two pieces of information and base everything they do on a limited view of the investing world.
To illustrate my point, I would like to briefly review the classic strategic planning process used in business and other fields.
Good strategic planning processes involve data gathering and analysis, goal setting, the creation of action plans and an ongoing assessment and measurement process.
Goals Setting
Everything starts with your goals. Goals should be as specific as possible. Goals should be realistic. Goals should be measurable.
Strategy developed from a comprehensive review of the marketplace.
A solid strategy supported by data and analysis to achieve your goals
Understanding keys to success – what works and what doesn’t
Intimate knowledge of the market – real world experience
Action plans to support the execution of the goals.
Prioritized activities to achieve your goals
Milestones and assessments
Measuring progress and making adjustments if necessary
Another key component of a good strategic planning process is testing. Even the best plans contain risks and uncertainties. There are always ways to test ideas in a small way to prove or disprove a hypothesis.
The investing world, like the business world, is complex and dynamic. Successful businesses and successful investors cut through the complexity.
Many, if not most, of the investors I come across DO NOT follow a disciplined strategic process to arrive at their financial plans. The biggest shortcoming is typically a lack of a thorough analysis of the investing market. Most investors are missing key pieces of information that leads to a less effective strategy.
The other major weakness is the lack of a thorough and complete assessment and review process. Because many investors are missing key data about investing, they cannot make the proper evaluation of their results. They don’t know what to compare their results to or how to properly assess their performance.
It is also common for me to come across investors who stick with one and only one investment strategy. In many cases, people should be deploying multiple investment strategies. One strategy might make sense for tax deferred accounts and another for taxable investment accounts, for example.
If you are uncertain about which investment strategy to deploy (most people are), you should be testing multiple strategies. You can get the answers for yourself.
The investing world is confusing and most of the experts make it more confusing. You are not alone if you struggle with this.
My mission is to cut through the noise for my clients. I have done the research and the work to be able to simplify the investing process – to share the data about what works and what doesn’t work.
But I can’t create your goals. You must do that for yourself. And you can’t figure out your ideal investing strategy without creating some goals – both objective and subjective.
Your goals come from what you need from your investments (income, returns, etc.) and what you want (safety, growth, risk, etc.).
If you need to draw heavily from your retirement accounts to meet living costs in retirement, the process is more straightforward. In this case, the strategy becomes very numbers driven. If you only need to earn 5% per year from your retirement investments, you have a variety of options available to you. If you need to make 6.5% per year to generate enough income in retirement, that leads to another set of options.
Many of the people I work with do not need to withdraw much from their retirement accounts to meet their living expenses in retirement. Some have enough income from other sources (pensions, Social Security, annuities, etc.) that they don’t need to rely on any money from their retirement accounts.
If people don’t need to touch their retirement accounts, the goals for those accounts are a little less straightforward. These investors need to decide what will happen to the money when they die. Who will inherit the funds? Will it be children? Charitable causes?
Do you want to maximize the money that you pass along? Do you want to avoid potential losses and keep the money safe? If no one is depending on that money, do you want to invest it aggressively? Do you want to simply minimize taxes?
The most important thing in coming up with the appropriate investment strategy is figuring out what you want. The best way to do that is to ask yourself a series of questions. What scenarios would make you happy? What scenarios would make you upset? Describe your ideal situation in 10 years, 20 years, etc.
Once you know what you want, the strategy flows from there. The key is to have the strategy and the goals aligned. In many situations I encounter, they are not aligned.
Every investment you own should line up with your strategy. Owning something just because you think it is a good investment is not good enough. You should understand every investment that you own and you should have a reason for owning it.
If you are strategic about your investing, you can be more disciplined and you can keep emotions out of the process. If you are not strategic, you will end up relying on luck. Luck is not a strategy.
If you need help with goal setting or strategy development for your investing, you can book a quick call with me using the link below. Talking this through with someone else can help you figure this out.
You can book time on my calendar by Clicking Here.
Stay Disciplined My Friends,
Phil
Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.
Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.
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