INVESTING: Worry-Free Investing checklist (printable)
These are the six basic steps to remember in order to achieve for worry-free investing as determined by Zvi Bodie and Michal J. Clowes in their book "Worry-Free Investing"(not sponsored). The basic idea is to measure risk against the goals you want to achieve and not just to maximise your investment compared to an index or other benchmark. It's the sensible way to plan your entire financial life, including your retirement, pension, inheritance etc:
1. SET GOALS. Make a list of the specific goals you want to achieve through your saving and investment plan. E.g. when to retire, what standard of living you want in retirement, what I want to give to my children, charities, inheritance etc.
2. SPECIFY THE TARGETS. Determine the amont of money you will need to achieve your goal(s).
3. COMPUTE YOUR REQUIRED NO-RISK SAVING RATE. Calculate how much you need to save as a fraction of your earnings on the assumption that you take no investment risk. For many people it is appropriate to count your house as a retirement asset.
4. DETERMINE YOUR TOLERANCE FOR RISK. Using as your benchmark the lowered-risk plan you have created in steps 1-3 above, evaluate how much risk you are willing to take. You can tolerate more risk the more certain your future earnings are and/or the greater your ability/willingness to postpone retirment is.
5. CHOOSE YOUR RISKY ASSET PORTFOLIO. After deciding how much of your wealth you are willing to put at risk, choose a form for taking the risk that gives you the greatest expected gain in welfare.
6. MINIMIZE TAXES AND TRANSACTION COSTS.
For further details in this respect, consult the above author's book, "Worry-Free Investing"
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