Lessons to Remember

If you have a plan, then your reaction to bad news, really bad news and awful bad news is governed by your plan. If you don’t have a plan, then you probably don’t understand your investments and why you own them. The first lesson to remember is that you should have a plan.

2020 Was a wild ride for investors. Did we crash?

A Plan Guides when Emotions run Wild

A plan is a helpful way to guide you during emotionally troubling times. When your life is guided with input from your emotions, it can be helpful. But if you let events that cause extreme emotional reactions to take command, it is highly likely that you won’t make good decisions. A wise medical doctor once told me (many times) that I should try to avoid making important decisions when I was in a crisis or was in emotional turmoil. He was right. Far too often we can make terrible decisions in the heat of the moment or in a fear-fueled panic. One way to govern overreactions is to have a plan.

Hotel Escape Plan

When you stay at a hotel or fly in a commercial jet, it is recommended that you know where the exits are. Most of the time you don’t need them. But if you do, knowing where they are can be lifesaving. If you neglect to plan, when an emergency arises, it is likely you will take actions more out of fear than out of wise response. The same is true of investing.

The Preflight Checklist

Successful airlines hire pilots and support teams that do some planning. There are plans for maintaining the aircraft, for refueling, for loading and unloading, for getting airborne, and for landing. The pilot doesn’t just hop into his seat, push a few buttons, pull a few levers, and take off. He (or she) has a checklist. You shouldn’t want to fly with a pilot in control that thinks a checklist is a terrible waste of time.

Before you fly you might want to plan
What investments shall I buy? Why these investments? How should I invest?

Investor’s Preflight Portfolio Investment Checklist

In the same way, you want to consider these disciplines when you invest:

  1. Destination: Where do I hope to be after a year of flight? After ten years? Why am I buying?
  2. Fuel: How many dollars to allocate? Do I put everything on a single investment?
  3. Takeoff – what is my entry price? Panic buying is as bad as panic selling.
  4. Landing – when do I stop the flight or bail out?
  5. How can I think about the eternal aspects of my investments? In other words, when this life is over, will I regret how I managed and shared what God put into my care? Don’t lay up treasures on earth where moth and rust corrupt. Lay up treasures in heaven. Jesus said that where your treasure is, your heart will be.

AAII Five Key Steps

Image from AAII with highlighting by Wayne

Define your goals. Pick proper allocations of your investment mix. Identify your investing preferences (mine focus on dividend growth stocks and ETFs). Select your investments. Monitor and repeat.