Written Investment Plan
A Written Investment Plan is a plan an investor creates stating rules that they will follow when investing/trading.
- A written plan is important to help you make sure you're following your own rules/system
- Would you start a business without a written plan?
- Investors who follow a plan/system/rules tend to do better than those who don't (because they avoid making decisions based on emotions)
- Investment Plans should be both written and comprehensive
- Written Investing Plans help investor:
- Forces investors to make decisions while you have a cool head
- Reminds you of how to act when markets set emotions high
- decided in advance on how you'll handle certain situations
- decide in advance how you will buy, sell, position size, etc
- helps investors maintain discipline
- help you react to stressful situations (you have the plan to follow)
- Common aspects an investment plan should include:
- How much capital to allocate to the strategy/plan
- Goals of the plan
- Level of Risk for the plan (potential to lose $)
- What type of securities will be used
- Buying Rules
- Selling Rules
- When to Update the plan
- How often to monitor the plan investments
- Risk Management