The fundamental strategy to financial planning and investing has remained unchanged for about a century now. This strategy has four key steps:
1. Assess and plan:This step involves taking stock of one's financial situation - income, expenses, and savings. Also, identify the short, medium and long-term financial goals. Using these put together a plan for the future.
2. Build an investment portfolio:The goal of this step is to build a portfolio of real investment instruments based on the plan above. The portfolio needs to be diversified, that is it needs to contain investments of various types to minimize the overall risk.
Investment3. Track and Rebalance:
After building the portfolio and starting the investments, one must stay invested over the long-term. Markets could go up or down, but trying to predict which way the markets move and changing the investments will be counter-productive.
Although trying to time the market is bad, it is important to track the performance of the portfolio periodically to see if the portfolio composition has been signficantly gone out of balance due to positive or negative growth. If that is the case, it would be important to rebalance the portfolio to its original composition.
