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INVESTMENT PLANNING

Investment Planning remains a four-step process in spite of the proliferation of investment products:

• Assess
• Evaluate
• Select
• Monitor

Before looking at any investment opportunity, the investor needs to assess their financial position. Financially speaking where are they and where do they want to go. The investor should clearly define their economic objectives: need for income, capital appreciation, tax shelter, liquidity, short and long-term financial goals. This assessment should include questions of temperament such as:

• How much risk can the investor afford financially and emotionally?
• What is the time horizon of the objectives?
• How much time is the investor willing to devote to managing investments?
• How disciplined is the investor about regularly contributing money to the investment portfolio?
• Are they willing to regularly monitor and evaluate their progress within the context of their stated financial objectives?

Answers to these questions set the stage for strategic investing.

Generically speaking what types of investments are suitable: investment mechanics vary, suitability depends on variables such as taxation, price volatility, liquidity and the ability to generate current income. The allocation of stocks, bonds and mutual funds can play a large part in the success of the investment strategy, “Asset Allocation” is the primary determinate of risk in an investment portfolio. Domestic and global economic conditions affect the performance of investments in many different ways. Appropriate investment vehicles increase the probability of success.

After the assessment and evaluation the investor is ready to select specific securities to fund the asset allocation guideline and to diversify the asset class holdings to minimize risk and maximize returns. Security selection is a fundamental and technical evaluation process. What is the mutual fund performance record, what is the manager tenure, what is the stock P/E, what is the bond duration. Prudent selection augments investment success.

Since an investor's financial situation and objectives can change over time and we live in a dynamic, social, political and economic environment investors must periodically review their holdings for performance as well as for suitability, i.e., is the investor more concerned now with safety, has a stock performed as expected, etc.  Whether an investor does it themselves or uses an advisor there must be a mechanism to measure performance to adjust as circumstances deem necessary.