How to Develop a Sound Investment Plan

Every person reading this article will be living, working and investing in different circumstances, with mind boggling possibilities for variation.

For example:

  • One person may have a full time job, but invests part time;
  • Another may run a small business, with investment on the side;
  • Yet another may invest full time, as a business.

However, very few of us get to start full time investing right away – we just don’t have the capital. So, what to do? You need to develop your own long term Investment Plan – one that will allow you make changes in your circumstances and lifestyle. Every plan must be different, and your plan needs to be flexible. Here are some principles that you can use to develop your own plan:

  • Don’t quit your day job until you have built up sufficient capital to weather the inevitable draw downs that every investor has to go through. Don’t live in the stupidly false hope that it won’t happen to you – it will! Take this as a given, and plan for it!
  • Start with a relatively low risk, but steady investment strategy (like selling options). Save the windmills (like buying options) for when you have the time to really focus on your investments. Once you have built up your capital with a relatively safe (and boring) strategy, start branching out into more fun stuff!
  • Diversify your investments, at several levels. Invest in different types of investment vehicles like stocks, bonds, CDs, mutual funds and dividend earners. Use different investment strategies, in ways that match your lifestyle, time allocation and risk tolerance. Consider long term position trading, momentum trading, swing trading, selling options (like credit spreads and naked puts), buying options (buying puts and calls or Deep-in-the-money options). Allocate your portfolio to different TYPES of investments and different STRATEGIES of investment.
  • Add an extra leg to your income generating efforts. If you have a full time job, then start a small business on the side – one that can run itself once you have set it up. Unless you really need this money, use the income from this business as seed money for your investment portfolio.
  • Don’t get obsessed with investing. Invest for a purpose, not just to get rich. Use the money to GET A LIFE – preferably with your family. The classics are too full of stories and histories of people who end up hugely rich, but divorced, abandoned by their children, rejected by their friends… and so on. Investing can swallow a person up, and unless you keep a large perspective, you can drown.
  • GET OUT OF DEBT! Why pay interest to someone else, when you could be investing that money. I am talking about all kinds of debt….credit card, mortgage…everything! Add up all the interest that you have paid this year, then work out how rich you would be if you had taken that money (instead of making someone else fat) and invested it in plan that gave you a good return. The result will shock you!
  • Be generous!!! History shows that generous people are always much better off and much happier than the other kind.

Remember: those who fail to plan plan to fail. The cliche is old, but truth remains!

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