Wednesday, January 7, 2009

Create a Purpose-Driven Investment Plan for Your Family

Many people look at investing and finance as a big mystery. It’s a convenient myth, because that allows for failure without responsibility. Good news, though. Some very simple steps can put almost anyone on the path to financial success. In this age of information, there are no secrets and mysteries are rare.

To succeed financially, follow these steps.

Create a purpose-driven investment plan. Each investment dollar should be tied to a specific family purpose. Emergency reserve? Retirement? College? Purpose and time frame determines the best course of action for saving and investing.

Research “best practice” investing for each purpose. You’d never know it from the general media, but this isn’t rocket science. Financial planning is a profession with incredible depth and resources. Seek out books, articles, and websites devoted to each purpose, and gather some solid material to guide your way.

Choose strategies offering promise of success with reasonable comfort. There are a lot of roads leading to success, but some are more efficient and comfortable than others. Some folks enjoy the scenic routes, but your best chance of arriving comfortably and on time are mainstream routes. (Remember: more comfort comes from more education.)

Implement each strategy, with an eye towards cost and convenience. Diversity in the marketplace creates a broad spectrum of choice and fees. Laypeople often suffer because costs and fees are confusing and obscure. A little digging can shed a lot of light on the subject. It’s a zero sum game, though. The higher the fees are, the less that is left for investors.

Monitor key data. Professionals focus on certain things. In our practice, we carefully watch portfolio composition, fees, and performance against peer managers. You may choose other factors, but create a simple dashboard for periodic review. Delve deeper only if the dashboard reveals problems. What prompts your engine light to flicker on?

Conduct an annual review. Compare against each purpose and meaningful investment benchmarks. Compare stock performance to the S&P 500 index and bonds against the Lehman Brothers Aggregate Bond index. How are your portfolios progressing towards each stated purpose? As long as things look reasonable against those standards, stay the course!

Ignore market and finance noise. The morning traffic report only matters when it affects your route to work or school. Similarly, much of the media’s (endless) market discussion is about things beyond your neighborhood or town. Tune to a station with inspiring music or challenging discussions. Maintain focus.

Delegate financial tasks that are too burdensome or too boring. Investing is such a small part of financial success, and it’s easier (and cheaper) than ever to hire professional help. Use the time you free up for education or increased productivity. If you can’t or won’t follow these steps, find a professional who will.

Dan Danford is founder and CEO of Family Investment Center in St. Joseph, Mis­souri. The firm is a commission-free investment advisor registered with the SEC. Danford and other advisors at the firm specialize in managing large portfolios of traditional investments. They do, however, advise investors on a broad range of wealth management services. More about Danford and this unique firm can be found at

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