3. Personal Investing Plan: Six-Step Road Map to Success

“There are two kinds of investors: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor—the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.”

—William Bernstein, The Intelligent Asset Allocator

“For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity.”

—John Templeton, investor, philanthropist, mutual fund pioneer, and billionaire

According to the Investment Company Institute, many investors heavily loaded up on mutual funds as the market was peaking in early 2000, and then heavily sold funds throughout the 2008 slide. Their behavior illustrates that too many investors are using emotion rather than logic to make their investment decisions. To become a better investor, you need a practical written investment plan that suits your individual needs, time frame, and risk tolerance. And you need to refer to it before making buy and sell decisions. Therefore, you should keep it prominently displayed. Your personal investment plan will become your road map to investing success.

Protecting your principal by avoiding bear markets is critical to your overall bottom-line results. This is difficult to accomplish unless you or your adviser (if you have one) pay attention to the market’s telltale signs of trend change, and then take action to avoid the downtrend. That’s why you need to incorporate specific “sell” criteria in the plan to take defensive action when the market is starting to slide. Just by crafting your own personal investing plan, you’ll be way ahead of the vast majority of investors—since they rely on buy-and-hope, and that translates into having no plan at all.

If you want to trade with a portion of your money, as opposed to investing in the stock market, then you will need a separate “trading” plan that focuses on the short term. Unless you are positive that potentially losing that money will not impact you and your family financially, do not even consider a separate trading account. Keep your investing and trading plans and accounts separate or you’ll get confused. What follows is an investing plan for your consideration that enables you to be in total control of your investments under all market conditions.

After many decades of investing in the stock market, I’ve concluded that buying-and-holding is risky and can lead to huge losses; therefore, I’ve developed a more realistic, easy-to-use approach that will help you become a more consistent and more profitable investor and provide you with the key to investment success which is to know what to buy, when to buy, and when to sell. Profits need to be taken every so often; otherwise, you may give them back over and over again in bear markets. That is not a smart way to manage your money. Therefore, I’ve provided you with a realistic, easy-to-implement, step-by-step investing plan that will help you become a more consistent and profitable investor.