Developing an effective plan of action is crucial to your investment success.
The success of your mutual fund investments will depend in large part to your investment strategy which in turn
will depend on your investment objectives which further depend on your understanding of investment risk,
investment return and your risk tolerance. So practically speaking, your investment strategies will
develop in the following order:
1. Develop Investment Objectives and commit to
This is the starting point of any investing effort and without it, we are simply gambling.
Unless we know where we want to go, our investing efforts will be directionless and inefficient, much like getting
in a car and driving without knowing where we want to go. Finally, we need to make sure that we don't get derailed
easily by peripheral events by committing to our investment objectives.
2. Understand Risk and
Return and determine your risk tolerance
To understand risk and
return, we have to understand what risk really is, how it behaves over time, which investments
have what risk profile and what amount of risk is appropriate for us given our unique circumstances at any given
time. We also need to know what investment return is and how it is affected by risk. We can then match up
our risk profiles to our investment objectives and move to the final step.
3. Choose Investment Techniques based on
Once we have matched our objectives to our risk profiles, we are in a position to pick the
most appropriate investment vehicles and investment techniques, optimized for the right time horizon.
In accomplishing the above steps and developing your personal investing strategies, you do
not need to pay for professional financial advice but it is important to realize that for more involved situations,
it is often very helpful to have a third party look at your problem with a fresh, highly experienced pair of eyes
and help you keep on track when you are tempted to waver. If you choose such a financial advisor diligently, you
will increase your chances of meeting your objectives successfully.
Investment Techniques you can use
Dollar Cost Averaging
Well articulated investment strategies will incease your chances of investment success and a
lack of investing strategy will increase your likelihood of failure. It is all about focus and