As he says, "I encourage you to look reality straight in the eye. The past is the past and the wise investor will learn from his or her most recent experiences. Follow the
investment process (outlined) and I believe that your 2003 year results will be rewarding."
1. Know your life objectives.
Know the income and growth needs of your
portfolio that are necessary to accomplish your short and long term life objectives.
2. Know the impact of income taxes on your investment plan.
Always look at the AFTER TAX RETURN of your portfolio.
3. Know what your return expectations should be for the investment classes in your portfolio. Each asset class (US stocks, international stocks, bonds, real estate, etc.) should have an
expected premium return over what can be obtained with a risk-free investment such as a Treasury bill.
4. Know and understand existing market and economic conditions.
Though difficult, this must be faced. Consider the earnings of the S&P 500 and the Price/Earnings multiple and
compare these to historical standards. Consider the state of the national economy.
5. Decide on the asset classes you will employ in your investment policy.
Diversification preserves your capital base over the long run and minimizes your potential for huge investment
losses. Studies show that, regardless of the proficiency of your money manager, effective allocation of assets among the various investment classes is responsible for 70% to 90% of the
return.
6. Determine the appropriate method of management for your securities.
Consider whether mutual funds accomplish your objectives, or if you need separately managed accounts. Decide if
your bonds should be in a bond mutual fund or a laddered portfolio. Look at the annual fees charged by fund managers. Compare their recent results against not only their own respective
benchmarks, but also against their peer group.
7. Establish your investment policy.
Make adjustments in your assets to reflect decisions made based on the previous items, with special consideration for the first item. Be thoughtful
and purposeful with investments, not emotional.
8. Monitor your investment results and revise as needed.
Don't expect to make the kind of returns that came in the mid-90's. Keep your investment policy in mind and be only as
aggressive in the market as you need to be.
