How to invest and why you need a plan

What makes rich people rich? When you look at the spending regimes of different income groups in the United States, it is clear: Savings. The real difference between rich and poor is that the rich spend a larger portion of their income on savings (pensions and insurance) and education.
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Source: WSJ, Department of Labor,

While preserving wealth and passing it on to future generations is a formula for financial success, it is surprising that less than 20% of Americans have a written plan when it comes to investing and even retiring. [1].
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The paradox in human behavior is that we are perfectly rational and able to plan for a big event in our lives, but when it comes to investing, this is often forgotten. In fact, you’ll find that only a third of investors have a written plan that guides their investment strategy and retirement plans.
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Why do you need a plan?

The world of investment is a harsh jungle, a world of dark waters where the smartest and most organized survive and the rest succeed as long as it is repaired. A written plan shortens our normal response to something as emotional as money. The gut prevents us from addressing our feelings and emotions. Instead of following the herd mentality that can lead you to make unwise investment decisions, a plan will force you to stick to a rational strategy based on basic investment principles. Here are some of the hard feelings you need to overcome when investing:
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1) Fear of failure

2) The tendency to continue with a certain approach just because you started

3) Personal issues such as relationship issues at home

It is also important to point out the main reasons why investors are sacrificing to the market and losing valuable funds:
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1) Released facts and figures encourage investors to invest in a company or financial instrument that is not structurally sound.

2) Excessive confidence makes some investors think that they are invincible and can always defeat the market.
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3) Everyone wants to be seen as a champion, a successful general who leads an army to victory. It can make investment decisions that are not based on rational thinking, but on your desire to surprise your friends, co-workers or family members.
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By writing an investment plan and following what they say, you will dramatically increase your chances of winning and increasing the size of your nest egg or investment portfolio. Simple steps to make a plan and avoid the herd mentality and instinctive impulses that turn us into fools when investing:

1. Set specific and realistic goals

For example, instead of saying that you want to have enough money to retire comfortably, think about how much money you will need. Your special goal may be to earn $ 500,000 at age 65.
2. Calculate how much you need to save each month

If you need to save $ 500,000 by age 65, how much should you earn each month? Decide if this is a real amount to allocate each month. Otherwise, you need to set your goals.
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3. Choose your investment strategy

If you are saving for long-term goals, you can choose more aggressive, higher-risk investments. If your goals are short-term, you can choose less risky, conservative investments. Or you may want to take a more balanced approach.
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4. Prepare an investment policy statement

Create an investment policy statement to guide your investment decisions. If you have an advisor, your investment policy statement will include the rules you want your advisor to follow for your portfolio. Your investment policy statement:

Indicate your investment goals and objectives,

Describe strategies that will help you achieve your goals,

Describe your return expectations and time horizon,

Enter details about how much risk you want to take,

Include instructions on the types of investments that make up your portfolio and how affordable your money should be, and

Indicate how your portfolio will be tracked and when or why it should be balanced.

Having a written plan and strategy, a smart investor no longer wins half the battle without making a financial decision. By implementing the plan and following certain operating rules, a smart investor will avoid the traps created by human emotions and behavior and will result in big profits.