Thrifty Thinking: 10 Steps to Getting Investing Right

“When it comes to investing, much of the game is simply not messing things up. But, of course, the goal is to not only avoid getting in the way of success; it is to maximize the odds of success, says Peter Mallouk, JD, MBA, CFP.

Mallouk has been rated the #1 Independent Financial Advisor in America by Barron’s in 2014 and his company, the #1 Independent Wealth Management Firm in America by CNBC in 2014.

His new book, The 5 Mistakes Every Investor Makes and How to Avoid Them (Wiley, August 2014) reveals the common and critical mistakes that investors make, why they make them and how to avoid to them.

After understanding these land minds and pitfalls he provides a sensible framework for creating a winning investment portfolio with a step-by-step 10-point plan about Getting it Right:

Rule #1:  Have a Clearly Defined Plan: Whether it’s for retirement, education, excess wealth, or any other portfolio, first determine a specific goal. Everything else flows from that purpose.

Rule #2:  Avoid Asset Classes That Diminish Results: Cash and gold are illusions.

Rule #3:  Use Stocks and Bonds as the Core Building Blocks to Your Intelligently Constructed Portfolio: Knowing the rate of return required of various portfolios, we can work our way to a basic allocation.

Rule #4:  Take a Global Approach: One does not need to become an international exchange expert to create a global portfolio. By simply purchasing an index fund, an investor can instantly add global exposure.

Rule #5:  Use Primarily Index-Based Positions: Actively trading securities in any asset class will likely yield lower returns. Choose index-based holdings for most if not all of your portfolio.

Rule #6: Don’t Blow Out Your Existing Holdings: Be wary of any advisor who recommends to “sell everything” regardless of tax consequences. Often, with customization, the portfolio can yield far better after-tax results.

Rule #7:  Asset Location Matters: Taxes matter. Place the
investments that do not create a lot of taxes (like large company stocks) in your taxable account. By simply purchasing assets in the most tax-efficient location possible, you will improve your after-tax return.

Rule #8:  Be Sure You Can Live With Your Allocation: The best portfolio is a portfolio that accomplishes the intended goals with the least volatility possible.

Rule #9:  Rebalance: To rebalance or not to rebalance, that is the question? You can be fine without a rebalance. But if you’d rather, simply confirm your goals and rebalance one to four times a year – or don’t.

Rule #10:  Revisit the Plan: Revisit your plan and projections once a year or any time a major change in life happens.

The Ultimate Rule:  Don’t Mess It Up!  Once you have the portfolio in place, stay disciplined.

ABOUT THE AUTHOR
PETER MALLOUK, JD, MBA, CFP, is the President and Chief Investment Officer or Creative Planning and affiliated companies. Mallouk’s companies provide comprehensive wealth management services to their clients, including investment management, financial planning, charitable planning, retirement plan consulting, and tax and estate planning services. He has been named the #1 independent financial advisor in America on Barron’s list and his company has been named the #1 independent wealth management firm in America by CNBC. He lives in Kansas City.