Would you like to invest and learn more about it

As a financial planner and fiduciary investment advisor, I work with people with varying goals and vastly different levels of education, income, assets and comfort with technology. I’m often worried by similarities I see among investors of all stripes.

Many people simply have no plan when they start investing. Others follow the latest hot investment tips from a stranger online, on TV or in a magazine. I’m surprised by how many investors think they’ve done well, but don’t know how to measure their true rate of return for the risk they have taken. Few investors even know how much risk is in their portfolios.

These issues arise because investors generally don’t use a consistent methodology — a repeatable, rule-based process — to build or monitor their portfolios. That often leads to portfolios that aren’t well-diversified, don’t have the appropriate amount of risk for the investor and aren’t tax-efficient. What’s more, many investors don’t review their portfolios and haven’t thought much about how their investments fit into a bigger overall plan.

Are you ready to invest?

What can you do to make sure you aren’t in this camp? First, determine whether you’re really ready to invest on your own. Based on my experience, there are a number of essential tasks to complete and issues to understand before you start investing.

Completing the following investing assessment can help you determine how prepared you are and whether you’d be better served by obtaining professional assistance from an objective, fee-only advisor.

1. I have a written list of my short-, intermediate- and long-term financial goals and know how much I need to save and the required rate of return to fund each of those goals.

Yes
No

2. I have completed a trusted risk assessment questionnaire tool (such as this one from FinaMetrica) and understand how my risk tolerance fits in with the required rate of return to fund my goals.

Yes
No

3. I have a written investment plan (investment policy statement) that spells out the asset allocation to be used in my portfolio along with the expected range of returns.

Yes
No

4. I understand the importance of asset allocation (the mix of stocks, bonds and other investments) and follow a methodology to identify and create a portfolio that is designed to provide the highest return for the level of risk that is appropriate for my situation.

Yes
No

5. I utilize a methodology to select the investments for each asset class.

Yes
No

6. I set aside time to regularly review my investments and make changes as necessary.

Yes
No

7. I utilize a methodology to monitor and periodically change the investments as needed.

Yes
No

8. I understand how tax inefficiencies will negatively impact my portfolio; which asset classes are best suited for tax-free accounts, taxable accounts and tax deferred accounts; and have structured my portfolio across these types of accounts to be tax-efficient.

Yes
No