Investing can be a difficult beast to master. There are so many variables that it often seems overwhelming to avergae investors like myself. There are asset allocation decisions to make, individual dividend stock ideas, and tax implications of your investment actions to name a few. If that sound familiar to you, then I have a suggestion that may help you with the overall process. It comes down to coming up with a decision process that will lead you to making solid decisions for your portfolio that will ultimately help move you from struggling to managing.[ad#tdg-embedded]
What is a Decision Process
Essentially, a decision process is a model or steps an investor can use to help them reach an ultimate decision. It helps because it formalises your thinking so that you can focus on the right questions, topics, and root causes for the issues your portfolio may have.
For example, if your portfolio has been lagging the returns of the overall stock market, it may seem like an easy assumption to make that you are holding the wrong stocks. However, with a structured approach to attacking the problem it may become apparant that the problem is not the stocks but your ratio of stocks to bonds. It is the job of your decision process to determine which of the two are the real problem and then to identify solutions
Why Not Just *Wing* It
It is human nature to make decisions constantly. Every second that goes by we have made another decision. For general day-to-day things this can be just fine. However, when things get more complicated, or out of our comfort zones (like perhaps dividend investing) quick decisions are not ideal because we make them using unresearched and /or missing information. Often we don’t even know what we don’t know!
What to Do About That Struggling Portfolio?
Your protfolio can be struggling for a number of reasons. Your asset allocation may be way off or your mutual fund fees are eating away at every ounce of returns you were hoping for. What ever it is, your job is to figure it out an act upon it.
To do this, I would like to suggest that you follow a simple model that will take you through a series of steps to understand the issue and create a plan of action. The model below is one approach to doing this.
The process starts at number 1, where you as an investor has really only identified that there is a problem. From there, you need to explore and dig deep into where this problem is coming from. This can include extensive brainstorming as well as using message boards to ask questions pertinent to your issue. From there, you progress through the process to ultimatly end up a number 6 where you implement your chosen solution and then move on to evaluate later down the line.
Through expereince I have found that the best way to make decisions that impact my dividend portfolio is to attack the issues and struggles with a systematic and thoughtful approach to the problem. I do not know everything about investing and there are certainly things to think I know but may be wrong on. Using an approach like the one above has helped me to make much more informed decisions that are not just ‘off the top of my head’. Give it a try yourself and see how it works.