If you’re superstitious, you’ll find it auspicious that there are seven investment P’s.
Business students who take classes in marketing learn about four P’s. They stand for product, promotion, price and place (where the product is sold). When it comes to investments, it pays to keep in mind the seven words below beginning with the letter P.
■ Plan. Begin your investment career with a plan and periodically update your plan as your investment career progresses and your circumstances change. Size up your sources of income and where you spend it. Try to bring the two together with a budget that allows for regular saving.
■ Priorities. You need to decide which of your outlays are least and most important, and rank those in between. This includes outlays for groceries, mortgage payments, providing for emergencies, child care and education, insurance and so on. You’ll need to decide how much of your savings to earmark for retirement, vacations, new cars and so on.
■ Preparation lets you execute your plan and its priorities. Draw up a one-page summary of your assets and liabilities. Then, organize a system of record-keeping that gives you ready access to facts on your financial situation. This should help you keep things in balance. Just make sure your system isn’t so demanding that you often let it get behind or, worse, lapse altogether.
■ Portfolio. Many investors start to think about an investment portfolio only after haphazardly acquiring a collection of stocks and other investments. Far better to start thinking about what should be in your portfolio long before you have the money to buy it.
Decide early on what your objectives ought to be—what mix of appreciation, income and safety is right for you. Then, choose securities so that each has the appropriate investment characteristics and, as a group, they provide balance and diversification.
■ Prudence is crucial at all times. The trouble with most financial transactions is that you can carry them out without taking cash from your pocket. Instead you say, “Okay, do that” over the phone or submit orders over the Internet. When your transactions take on this ethereal quality, risk soars. Before doing transactions, consider what you stand to lose. What will happen to your financial plan if things go wrong—how will you have to alter your priorities?
■ Patience is necessary, because investing’s biggest profits come only in the long term, and because patience helps you avoid acting on impulse (one of six of the most common investment pitfalls). Successful investing is a life-long endeavour that calls for composure in the face of temptation and disconcerting short-term events.
■ Perspective helps you avoid getting carried away by enthusiasm in times like these—or despair in hard times. You want to look on each of your investments as a part of the financial whole. If your plan determines your investments (rather than the other way around), you’ll have little reason to worry unduly or depend too much on any single investment.
This is an edited version of an article that was originally published for subscribers in the November 29, 2019, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
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