What makes the rich rich? Observing the consumption patterns of various income groups in the United States, it can be clearly seen: savings. The real difference between the rich and the poor is that the rich use more income for savings [pension and insurance] and education.
Source: Wall Street Journal, Department of Labor,
When building wealth, retaining wealth and passing it on to the next generation is a formula for financial success, it is surprising that less than 20% of Americans have written plans for investment and even retirement .
The paradox of human behavior is that we are completely rational and can plan for major events in our lives, but in terms of investment, this is usually forgotten. In fact, you will find that only one-third of investors have written plans to guide their investment strategies and retirement plans.
Why do you need a plan?
Investing in the world is a harsh jungle, a turbid water world, the smartest, most organized survival and success, while the rest are swallowed up. A written plan will shorten our normal response to such emotional emotions. It prevents us from resorting to our intuition and emotions. Rather than following a group mentality that may prompt you to make unwise investment decisions, a plan will force you to stick to a rational strategy based on fundamental investment principles. Some of the difficult emotions that must be overcome when investing include:
1] Fear of failure
2] The tendency to continue using a method just because you started it
3] Personal affairs, such as family relations issues
It is also important to point out the main reasons why investors become the market leader and lose their valuable funds:
1] Missing facts and data misleading investors to invest in companies or financial instruments that are not well structured
2] Overconfidence makes some investors think they are invincible, they can always beat the market.
3] Everyone wants to be considered a champion, and a successful general can lead the army to victory. This allows you to make investment decisions that are not based on rational thinking, but to impress your friends, colleagues or family.
By writing down your investment plan and actually following what it says, you will greatly increase your chances of winning and increase the size of your nest or portfolio. Here are the simple steps to make a plan to avoid the group mentality and instinctive impulses that turn us into fools when investing:
1. Develop specific and realistic goals
For example, don't say that you want to have enough money to retire comfortably, but consider how much you need. Your specific goal may be to save $500,000 when you are 65 years old.
2. Calculate the amount you need to save each month
If you need to save $500,000 at the age of 65, how much do you need to save each month? Determine if this is the actual amount reserved each month. If not, you may need to adjust your goals.
3. Choose your investment strategy
If you save for a long-term goal, you can choose a more aggressive, higher-risk investment. If your goal is short-term, you can choose a less risky, conservative investment. Or you may want to take a more balanced approach.
4. Develop an investment policy statement
Create an investment policy statement to guide your investment decisions. If you have a consultant, your investment policy statement will outline the rules you want the consultant to follow in your portfolio. Your investment policy statement should:
Specify your investment goals and objectives,
Describe the strategies that help achieve your goals,
Describe your return expectations and time frame,
Including details of how much risk you are willing to take,
Including the types of investments that make up the portfolio and the criteria for your funding needs, and
Specify how to monitor your portfolio and when and why you should rebalance your portfolio.
A smart investor with a write-down plan and strategy has won half of the battle without making a single financial decision. By implementing the plan and adhering to established operational rules, smart investors will avoid the traps caused by human emotions and behaviors and eventually win the grand prize.Easy Accounting For Investment Clubs,Click here!