Monday, April 28, 2008

Investing

Spend less than you make, show less than you have

* You can't invest what you don't save - An investment plan starts with a cogent savings plan.

* Know your objectives - It's important to get a return on your capital, and it's important to ensure the return *of* your capital. Your investment strategy should be tailored to your risk tolerance, and that should reflect where you're at with respect to child bearing, retirement, etc.

* Know your alternatives - With a vast array of mutual funds, annuities, and exchange-traded funds, there are many ways of investing nationally, internationally, in stocks, and in other asset classes.

* Diversify, diversify, diversify - Even the greatest investments (think residential real estate of the last decade, or equities in China) can lose money quickly. Placing eggs in many baskets and ensuring that those baskets are not highly correlated in returns produces superior risk-adjusted returns over time.

You work for your profits; it's important to ensure that they work for you. The average savings rate in the U.S. has recently become negative; people are spending more than they earn. They have assumed that the rising values of their homes would fund their retirements. With the recent housing decline, that assumption will be called into question for quite a few of those folks. For them, retirement is a potential train wreck on the horizon.



Establish a three-pronged investment approach

a. Establish a tactical asset allocation plan based on current goals and risk tolerance (Aggressive Growth); re-evaluate risk profile yearly

b. Establish both a workable valuation strategy for value stocks and a workable evaluation criteria for growth stocks.

c. Establish a strategic sector rotation plan based on economic cycles

——Establish a reasonable and comfortable time horizon between reallocations, like 8-12 weeks?

http://family-invest.clearwiki.com/