Your investment strategy is a one-page document that clearly outlines your future intentions and criteria for success. Think of it as a guiding star that can be turned to whenever you’re unsure about the next action.
The essential information
While you’re free to include unique parameters – perhaps you’d like to indicate what your children should do after you’re gone, for example – there are some non-negotiable criteria to include in your strategy.
These are:
Your intended outcome
What is the purpose behind your investing? Do you have a hierarchy of financial goals that begins with your children’s education and ends with a sports car?
Your asset mix (portfolio)
What do you think is the correct mix of asset types for ensuring great results, and protecting against negative market events?
Your risk tolerance
Are you the type who’s likely to lose sleep while you know your assets are facing uncertainty? Then acknowledging this will help you make decisions when you’re presented with opportunities.
Your cost tolerance
What level of fees are you willing to accept? The higher fees of managed funds may make sense if your time and attention are already dedicated to projects you care about. Or, you might have a strict philosophy of minimizing costs.
We recommend this article on family constitutions (multi-generation investment strategy documents) for inspiration.
To end this series of long-term investing, we’ll finish with how to control your vices and become an investment master.
