Before we talk about your long term investment plan, let me tell you a quick story.

In my past career, I picked stocks in front of Bloomberg screens with flashing green and red prices. I saw the devastating depths of the 2008 Financial Meltdown, and the stock market that came roaring back afterward. I came away from it all knowing one truth: No one is right about what any “market” will do.

During the lowest point of the Great Recession, there were tons of people talking about how the market would never recover. Today, those same voices are back talking of its inevitable fall. And they are right – the market will fall again. We just don’t know when. The market, by its nature, is cyclical and volatile — that’s it’s only guarantee! But I’m here to tell you that it doesn’t really matter.  

Take that in for a moment. When it comes to investing, it doesn’t matter what the market does!

The most successful investors – the ones you don’t see babbling on TV — are humble people (it’s a humbling business). Instead of gambling on the short-term direction of the market, successful investors have a framework for how they invest their money. This includes determining how much risk they will take, how much liquidity they have and what types of investments they’re willing to make or the ones they should avoid. 

While everyone’s mental models are different, most successful investors prepare for all outcomes and make money because they follow-through on their framework. So why should you invest any differently?

Create a long term investment plan that’s right for you

I want you to turn off CNBC, stop listening to the doomsday-ers, and make a plan! You can start by following the guidelines below to create your successful long term investment strategy:

Determine how you’ll use your money

What do you want to use your money for first? When you make a long term investment plan, you’re investing your money with a purpose. This could be a child’s education, a lifestyle change or simply to grow your wealth. Figure out where your money will go first to determine the types of rules you need to set up for your investing. On this point: here’s a short and simple blog on that topic. 

Create a timeline  

Preparing a timeline will give you a lot of insight into how you need to invest. Do you want the money for something within three years? If so, be very conservative with your investing, and take very little risk. If you have no immediate plans or the money is for something far off in the future, you can be more aggressive with how you invest.

Understand your tolerance and capacity to take risk

Could you stick it out if your portfolio fell 20%? Do you understand the inherent trade-offs of risk and return? In order to perform better over time, you have to be able to tolerate some near-term volatility. A little secret to handling those ups and downs: If something makes you uncomfortable, don’t do it! Maybe the decision will be less optimal for you in the long run, but if you can sleep better at night, passing on the risk will be worth it.

Set up your rules and follow through with intention

If you know that your portfolio has 20% bonds and 80% stocks, stick to that formula. These rules will help you to rebalance your portfolio, and essentially buy low and sell high. Over time, if you want to become more or less conservative, you can adjust these allocations. The important thing is that your approach isn’t arbitrary. Some additional reading on asset allocation: here and here. 

Stick to the long term investment plan

This is all great on paper, right? But the most common challenge to making your long term investment plan successful is sticking to it! The biggest and most costly pitfall for investors is not exercising follow-through regarding the system they create. And so often, our emotions are to blame: People freak out and sell when the market falls rather than stick to their plan, or we get attached to a stock that should actually be sold. The list goes on.  

Just remember, investing is not about correctly calling the next market move or picking the best stock (see here), but rather having your money grow for you over time to meet your needs and goals. Keep that in your head at all times as you build your long term investment plan. And if you get spooked or overly excited by what you read or see in the news, do your best to tune it out!

Sticking to a plan is easier said than done. If you need help strategizing about your long term investment plan, contact me for a consultation. I can help with your investment management needs.