The key to a successful investment plan is to pick one that fits your personal style. If you’re always busy and simply can’t find the time to pay attention to your investments, you need to pick a style that matches your life. There’s no sense adjusting your life to your investments, it should be the other way around. It’s difficult to pigeonhole anyone into one particular bucket but find the various suggestions in each grouping to see how best to use them to match your life.
Everyone starts as a novice, there’s absolutely no shame in being a beginner when it comes to the stock market. In fact, it’s probably better that you’re a beginner. It was the experts that got us into the whole sub-prime mortgage mess. Until they closed their doors, the halls of Bear Stearns was full of experts. That being said, if you’re a novice when it comes to the stock market, put your money into a high yield savings account  and start playing with a “play portfolio” at one of the finance sites. While you’re learning, your savings will still earn a nice interest rate.
When I was learning, I used Yahoo! Finance  and a tool over at The Motley Fool  (if you’re a novice, The Motley Fool is a great place to learn more about the markets). You can use one of any number of play portfolios to hone your skills and get used to the stock market (without the pesky “losing money” part).
The Regular Joe (or Jane)
The Regular Joe is someone who likes to check up on stocks every once in a while (whether that’s once a day, once a week, or once a year) and keep up to date on the financial news. He or she has the time and inclination to read the news but simply isn’t terribly interested in everything that’s going on in the financial word. The solution? Try a “Lazy Portfolio .”
A lazy portfolios are buy-and-hold portfolios that consist of low-cost & no-load index funds. They are the bane of Wall Street and brokers hate them. They are created by financial experts and they perform quite well. Here are a few of the cooler sounding ones:
- Couch Potato: 50% Vanguard 500 Index & 50% Vanguard Total Bond Fund Index
- Sophisticated Couch Potato: 75% Vanguard 500 Index & 25% Vanguard Total Bond Fund Index
- Margarita: “One part total stock index, one part international stock index and one part inflation-protected Treasury securities.” (if you went Vanguard, that’d be 33% Total Stock Market Index fund, 33% Total International Stock Index fund, and 33% Inflation-Protected Securities Fund)
- Coffeehouse: 40% Intermediate Bond Index, 10% in each of Total Bond Index, S&P 500 Index Fund, Large-Cap Value Fund, Small-Cap Fund, Small-Cap Value Fund, International Fund, and a REIT index fund.
- No-Brainer: 25% in an S&P 500 Index Fund, Small-Cap Fund, European Stock Fund and a Total Bond Market Fund.
There are plenty of other options out there, and you don’t have to go with Vanguard, but those should get you started.
Everyone has a bit of gamble in them, some have more than others. I used to play quite a bit of online poker and blackjack in college, so I know that feeling. I know that rush of seeing good things happen and the despair when bad things happen (all too well), so I’m familiar with that mentality. I don’t gamble much anymore but it’s easy for one to fall into the trap of playing a little too much with the investment portfolio. So many of the same features of the stock market mimic the casino. Your money isn’t “real” money, it’s just numbers on a screen. Stock prices can jump and fall so quickly (even more quickly once you start talking options and derivatives) that it can give you that rush. (I wouldn’t recommend for gambling addicts!)
The solution is to go “Regular Joe” (i.e. Lazy) on 90% of your portfolio and allow yourself to “play” with the remaining 10% (any safe percentage, or absolute number, will do). With the 10% you can put it on individual stocks, experiment with options or futures or even foreign exchange, and feed desire for excitement.
The Compulsive Ticker Checker
When I first started working, I checked Yahoo! Finance  every half hour while I was at work. I had some individual stocks in my Roth IRA and I was checking them every few minutes just to see what was going on. I did it because I didn’t really have much else to do at the time and it was just a way for me to read up on news, check to see if anything crazy was happening, and otherwise just kill time. The real solution to a compulsive ticker checker, if you want to reduce risk and still maintain market returns, is to select broad market index funds and add them to your online portfolio tracker. You’ll have plenty of information in those index fund news articles to keep you busy all day. Or get a hobby that isn’t investment related!
If you’re the type of person who wishes there were twenty-eight hours in a day, then you know that the reason your investments are being neglected is because you simply have too much on your plate. Rather than adjust your life’s priorities so you can invest properly, you should adjust your investments to match your life’s priorities. If you’re way too busy to look at your investments, even just once a year, then go with entirely lifecycle or target retirement funds. They are simply mutual funds comprised of other mutual funds, designed for a specific retirement date in mind. They handle all the allocations, all the re-balancing, and all the headache you simply don’t have the time to do yourself. They are also very affordable so you aren’t paying out the nose for someone to manage your investments.
Selecting the right style is crucial to ensuring long term success. If you’re a gambler (or have the itch of a gambler) and try to stick with a portfolio that doesn’t let you satisfy your desire for risk, you’ll end up making bad decisions somewhere once those bottled emotions get uncorked. If you’re overworked and don’t stick with something simple, things will fall through the cracks and your assets will suffer.
Which type(s) are you?
(photo: spencereholtaway )