It is important that you understand the environment in which you are investing. Understanding the key components of this environment is critical. First, you should decide whether you can invest on your own or whether you will need help. When assets are small, you can often make important decisions on your own. As the size of your assets increases, it may be a good idea to get help in your investment decisions.

Be familiar with the major players in the investment world. How are they compensated for their services? What are their major areas of expertise? What is the difference between an independent broker and a captive broker? What are the strengths and weaknesses of each type of broker? What are the strengths and weaknesses of financial planners? Come to understand the strengths and weaknesses of each of the different providers of financial advice. Make sure they are operating in your best interests as fiduciary, and not just as a broker.

Regarding your Investment Plan, think through the importance of diversification as you put your Plan together. Fear and greed are typical feelings that affect us all. In order to minimize the problems of fear and greed, it is important that you determine investment policies to help you as you work to achieve your goals. What is the maximum amount that you will invest in any single investment? We are not talking about mutual funds, index funds, or ETFs, but single investments. Most institutions have a maximum of between 5 an 10%. Include your maximum total in Section II.A.2.

Next, determine whether you will use leverage to invest. Leverage is debt. I encourage you to not short-sell securities or buy on margin, but you can include your guidelines in Section II.A.3.

Finally, determine your investment benchmarks. Investment principle 7 counsels to monitor portfolio performance. That means you must choose an appropriate benchmark for each of your asset classes and for each of your assets. If you would like help, I have included recommended benchmarks for each of the asset classes in Learning Tool 27: Expected Return Simulation and Benchmarks. Select the asset classes in the spreadsheet, and it will give you my top three recommendations for asset class benchmarks. Include these benchmarks in Section II.B.1. and II.B.2. You will not include the allocations, but you should add the benchmarks.