Investing money in securities, as far as I’m concerned, is the fun part of money management. Making informed decisions as to where and how to invest, utilizing risk management strategies, and creating customized investment plans for your most important money will set you apart from other money managers. Over my career I’ve taught thousands these strategies, and I can teach you too.
These strategies lean heavily on Modern Portfolio Theory. as do most successful professional money managers. I want you to find your own place along the “efficient frontier.” Understanding your risk tolerance for investing is the first step.
Risk Tolerance for Investing
Before creating those customized investment plans, determine your risk tolerance for investing. Maybe you’ve taken one of those ubiquitous risk management quizzes you see on the internet? Although there are a few good ones, I find many of them unhelpful and even silly. I favor you assessing your own risk tolerance for investing. It’s important you get it right; Otherwise, you’re less likely to stick with your investment plan when the going gets tough.
Risky to Not-So-Risky Ratio
What’s the first step in creating a customized investment plan after determining your risk tolerance for investing? Figuring out your risky to not-so-risky ratio for next year. This alliterative ratio should consider both risk tolerance and time horizon for the first year and all subsequent ones.
Next, make sure you add plenty of dynamic diversification to both the risky and not-so-risky sides of your ratio. This ensures a smooth landing and increases the chances of you achieving your goal despite possible negative market conditions.
Rebalance and Reassess
After initial setup, only occasional tinkering with your plans is necessary, freeing up your time for other more exciting activities. At least once a year, however, you absolutely must rebalance and reassess your investment plans. If you don’t, you could violate tenet number 5 on my list of Ten Tenets of Successful Security Investing, which you never ever want to do.
These strategies are not the next new get rich quick scheme, app, or gimmick. They will, however, work well regardless of your accepted amount of risk, be that super-aggressive, super-conservative, or somewhere in between. And they’re designed to maximize your returns no matter what your stage in life: Just getting started, mid-career, approaching retirement or already retired.