3 Keys to a Successful Investment Plan

Investing without an investment plan is like shooting in the dark. Yet a large number of investors are doing both, greatly increasing their odds for failure.

Let’s analyze three keys to developing a successful investment plan.

Cultivate a Disciplined Savings Habit

A consistent and disciplined savings habit is the lifeblood of all thoughtful investment plans. Without money, there’s nothing to plan for.

While the exact amount you decide to save is a personal decision, it should be based upon your unique financial circumstances. For example, individuals with higher incomes should most definitely be able to save more compared to individuals with lower incomes. Likewise, individuals with lower incomes should not use their limited resources as an excuse to self-pillage.

Saving is a form of self-respect, and people who don’t save are penalizing themselves. Excuses like “I can’t afford to save because I have too many bills” don’t count. Everyone has bills, and following through on a realistic savings plan is one of the keys to minimizing their burdens.

Invest Realistically, not Fancifully

“My goal is to have compounding returns of 25% just like Warren Buffett” is not an investment plan. Why? Because a key ingredient of a workable plan is that it is realistically designed and reasonably achievable. Expecting Buffett-like returns is neither.

The best strategy for most people is to own low-cost index funds or ETFs that cover a broad spectrum of asset classes. This includes bonds, U.S. stocks, emerging-market stocks, international stocks, Treasury inflation-protected securities (TIPS), commodities, real estate and cash.

A well-drafted investment plan should map out, in exact percentages, how each of these investments will be allocated in your portfolio. It also should tell you how often to re-balance your investments.

Execution

Here’s another, sometimes-forgotten detail: Your investment plan should explain how long it will take you to reach your investment goal. Again, make sure your timetable and your objectives are in agreement. Setting a goal to reach $1 million in 10 years by saving $50 per month, for instance, is not realistic.

While your investment plan does not need to be elaborate, it should, as we noted above, be achievable, reasonable and tailored to your personal needs.

Finally, the best-written investment plan is useless if you don’t follow through on it. In this regard, I have three suggestions: execute, execute and execute!