many investors find ˚emselves struggling to cope …...many investors find ˚emselves struggling...

Many investors find �emselves struggling to cope wi� �e stress of managing an account. In fact, some say investing is only for financial technocrats. Here we will discuss a simplified plan for investing, as a plan is �e first step to weal� creation.

Consider �is: would you build your home �en design it? Hopefully you said no. Well, it is �e same for investing. You should clearly detail your desired objectives, research �e inputs, construct your holdings �en execute and follow up. These modest steps are not exhaustive but will give you a head start to building a well-diversified portfolio.

A salient point to most �ings in life is having a purpose. Briefly outlining your investment objective, �e purpose or goal for �e investment, is key. Objectives vary among individuals but one �ing remains �e same: No one wants to lose money. Now, I cannot tell you �at you won’t lose money investing - even when planning first - however, planning minimizes losses and protects gains. It is crucial to translate into words your desired gains and acceptable expected losses and adhere to it. This can be documented as a 20% expected gain and no more �an a 10% loss. Let us consider, for example, �at six mon�s ago you bought 100 Apple shares at $90.00 a share. At �e time, Apple was trading at $107.50 a 19.4% jump in price and close to your expected gain. Following your objective you will perhaps want to sell and realize your gains on �is stock. Of course if your objective was to hold Apple until Steve Jobs resurrects �en you hold. The main point being �at you follow your objective.

A�er documenting your gain/loss expectations you will want to decide on �e mixture of your portfolio. This is an important aspect so chose carefully. The common adage is 30% equity, 70% fixed income for �ose in pre-retirement; 70% equity, 30% fixed income for �ose now entering �e workforce and a spot in between for �e rest. I would suggest factoring your human capital, i.e. your job, into �e equation. For example, a young stockbroker or financial planner is overly exposed to equity markets given �e nature of �eir job. Fur�ermore his or her job may be target oriented. As such he or she may want to reduce �eir equity exposure and invest in more income bearing assets even �ough �ey are young. This will offer some stability in income.

At �is stage we know what our expected gains/losses are and what broad asset classes we expect to invest in. Next, research �e assets. You do not have to rely on your own judgment for �is step - you can subscribe to paid research, utilize common data over �e internet or have a professional investment analyst do it for you. The best way to start is to choose companies �at you are familiar wi� such as Coca Cola or Amazon (not a recommendation).

Ano�er approach involves looking at �e best performing industries and investigating fur�er to find �e top companies wi�in it. Once you choose a company or companies try to acquire a copy of its annual report as �is will guide you to �e company’s financial performance and outlook for �e foreseeable future. Some fundamental information to pay attention to would be revenue grow�, income grow� and cash flow streng�. This is not an exhaustive research list but it will set you on �e right course. You can always have a company like Guardian Asset Management research �e companies and do all �e hard work for you.

The �ird step involves building a model of your portfolio wi� asset classes such equities, bonds, mutual funds, etc. Having determined �e percentage allocation between equities and bonds we will populate �e portfolio wi� each specific investment - to simplify our example, we will use a notion of 100% Equity. It is important to consider diversifying wi�in �e Equity class and minimizing exposure to one asset. The rationale behind �is technique vies �at, on average, a well-diversified portfolio will yield higher returns wi� lower risk �an a portfolio wi� an individual investment. Studies have shown �at maintaining a well-diversified portfolio of 25 to 30 stocks yields �e most cost-effective level of risk reduction. Investing in more securities yields fur�er diversification benefits, albeit at a drastically smaller rate. Once chosen �ese stocks forms �e blue print to your investment pa�.

You have competed ninety percent of �e work and now what’s le� is to execute �e trades. Elect an asset manager �at will satisfy bo� cost and service as �e former is just as important as �e latter. The choice is yours and it is advised �at you shop around.

Finally and �is step is paramount to investing, follow up on your investments. Track your gains - see where it lies in your objective. Ask yourself questions such as am I gaining or losing? Am I overly exposed to loss-making companies or a particular sector? Is �e market in an uptrend, downtrend or limbo? Answering �ese questions may lead you to rebalance your portfolio until returns pick up or to invest your gains into additional assets. Do not hold onto a small unmanageable loss until it becomes an unbearable huge loss. And do not sell early gains. Stay focused, buy low and sell high. The best advice I can give you is to remove emotions when making investment decisions.