Whether they’re saving for retirement, their children’s college education, a new home or even a car, most people fall into one of two camps when it comes to having an investment strategy.  Either they:

Set the wheels in motion by making a few investment selections in their employer’s retirement plan at work or their child’s 529 college savings plan, then they “let it ride” and hope for the best, never re-balancing or re-allocating their portfolio for years and years. 

Or they:

Select some individual stocks or mutual funds based on a gut feeling or a friend’s recommendation only to jump in and out of the market as it bounces up and down and all around, sending their emotions (and their investment holdings) on a rollercoaster ride. 

Neither approach is really a strategy. 

A sound investment strategy is a well-crafted plan that takes into consideration many things, including an investor’s well-defined goals and how much risk is appropriate for them to take.  While it cannot ensure that those goals are reached – we live in an uncertain world after all – it has many benefits, including:

1. A sound investment strategy makes you think carefully about what you are setting out to do.  Goals such as “retirement” or “pay for my children’s college education” can seem nebulous and far away.  But creating a sound investment strategy forces you to better define those goals so that you have a clear sense of where you want to go and what it will take to get there. 
2. A sound investment strategy can give you the emotional strength you need to deal with market turmoil.  When you define in advance how much risk you are willing to take and you have a good sense for how much your portfolio might bounce around under stressful conditions such as the 2008 financial crisis, you will likely be better prepared for those inevitable market downturns – and more likely to stick to your plan instead of selling off your investments in a panic or spend your nights in a sleepless state of worry. 
3. A sound investment strategy will map out when to take action in your investment portfolio.  It will provide clear, rational support for making your buying and selling decisions.  If you follow it, you’ll no longer be a victim of your emotions, which for most people is their own worst enemy. 

Want to have a more positive investment experience and increase the likelihood of reaching your retirement and kids’ college education funding goals?  Maybe it’s time to create a real investment strategy. 

Greg Pierce is a Fee Only financial planner located in St. Louis, MO, who specializes in helping people make smart decisions in retirement planning, college education planning, tax planning, investments and more.