Investment plan: #2 The Objectives

Let's face it, we all need money. It makes us get up in the morning and go. We need it to pay for the things we like, to feel comfortable in our future and to take care of the people we love.

Money is not always the same though. Money today is not the same as money in 20 years. And obviously a little of money is not the same as a lot of money or the same as a billionaire-lot of money.

What's my objective with the money? What do I need it for, why do I want it? That's the classic goal: security, kids education, retirement. It is key to properly allocate and manage, to know what to do with it and particularly what not to do.

I would add another layer to this: what do I get out of the process of managing and investing my money? How does that shift my investment strategy? Do I get a thrill for the day trading? Do I enjoy digging through annual statements and watching replay of shareholders meetings? Do I get all excited when building macros to derive automated trading systems?

The pleasure one get out of investing will dictate the strategy as much as the end objectives. And that pleasure, that involvement will also come at the cost: that of the time spent researching investments. The higher the bore, the higher the cost for anyone. One might as well go for automatic allocations to mutual funds (or more efficiently ETF) if logging into a 401k account is already a snooze.

In a nutshell, I would say the investor has to know itself and know what she will need the money for, what she can withstand with her money: am I comfortable letting manage your entire portfolio and forget about it? Do I want to be able to have a word every quarter, every year, year week? Am I comfortable with products I don't understand (don't think one should, but their call)? What would I do if you logged into my account and realize my investments have lost 40%?

Its' the when, why, what, who and how.

Have enough to retire at 50, in a remote island where I can fish and grow my vegetables. Send the kids to college.

Have fun for a while, then think about the future.

All sorts of valid strategies, whatever you like, however you like.

Know what you want and don't want.

40% drawdown is nasty and painful. It is beyond my limit. Where's yours?