Back                            Ok smarty, what do I do now?

This article was inspired by a comment from Bev (a participant in the first course) who mentioned that while she had calculated her 'magic number' and had done a lot of the planning we talked about in the course she was unsure what to do next. 

This got me thinking well what do you do after the course?

To start with if you are not saving, start saving. By saving I also mean Pay off any debt as quickly as you can. 

Next, decide on an investment strategy. Initially this will mean investigating and understanding the benefits and risks of the various investment options that are available. For example residential property is supported by bricks and mortar but it also takes a lot of time to buy and sell.

Compare each of the investment options to the results of your self analysis and financial plan. This will help to ensure that any investment strategy you do use will match your personality, be effortless to apply and easy to stick to. If you are like me when I started and know nothing about investing then simply put money into a bank account or your superannuation while you develop your strategy. 

In my case, any strategy I was going to adopt had to provide a high level of financial security, relatively low risk and a high level of control over any decision making. 

As a result I chose to use the share market as the basis for my investment strategy. My accounting degree gave me an overall understanding of the business world and the ability to research companies. Shares in large companies are usually liquid, that is they can be bought and sold quickly which gives an extra level of security. Share investments are also flexible in that you can sell a portion of your portfolio when you need cash to meet living expenses. Lastly it is an area that I find interesting so doing the research required is not a chore.

Obviously there are risks but I believe these are controllable to a reasonable extent and where they are not then it is possible to take steps to mitigate any negative effects.  As an example, to reduce the impact of a fall in the share market I keep a sizable cash balance in a bank account. That way I can continue to meet my living expenses without having to sell shares when the market is depressed.

Now I am not trying to turn you into a share market tragic like me I am just illustrating how to apply the steps. 

Once you have identified a broad investment strategy it is time to educate yourself. Just because I was comfortable choosing the share market didn't mean that I immediately went ahead and started buying shares. I took the time to learn as much as I could about how the market operated and what approaches could be used. Personally I like to read so I make a point of reading as much as I can whether that be investment related books (see the recommended reading list) or the daily financial press. I also made extensive use of the Internet. Remember to be selective here and stick to the reputable websites (for example those associated with respected financial institutions). 

If you do not want to manage your investments yourself then this step will centre on identifying the characteristics of a good advisor or investment fund. In this case I would recommend seeing several advisors ( eg accountant, financial planner or licensed financial advisor ). 

When approaching advisors be fussy and shop around. Don't be afraid to 'interview' them and convince yourself that they have the skills, track record and approach to merit your trust. Make sure they give you enough information on their track record to see how they have performed both over time and in various investment scenarios (eg in both good and bad markets). Remember the 3 questions that I suggested you always ask when dealing with financial advisors. Lastly make sure that any advice they give is consistent with the investment rules we have covered and match your investment goals.

Similarly if you are looking at using an investment fund apply the same rigour. Look at the fund's performance over the long term (I think 10 - 15 years as a minimum) to make sure it is effective in various situations. This also applies if you are a government employee and all you have is your superannuation in the relevant government scheme. There is no reason why you should not make the effort to know how the government fund is performing, where they invest your money and who is making the decisions.

Once you have invested keep a close eye on the performance of those investments. People get themselves into trouble when they assume that the act of investment is all that is required. Remember, nobody cares as much about your financial welfare as you so it is your responsibility to monitor your investments. 

If you are using an advisor make sure they are updating you regularly on how your investment is performing. Don't accept statements like 'its all going well don't you worry'. Ask for details and to be notified when something occurs that is likely to affect your investments. For example changes in tax policy or major changes in the personnel running a fund in which you are invested. In this instance it is better to have too much information than not enough.

If you believe that the investment performance is deteriorating or you think you have made a mistake take action. It is very easy to let your ego override your good sense. Ultimately the only test that matters is whether or not you are making a sufficient return for the risk you are taking. If not stop what you are doing and investigate the reasons for the under performance.

The fact that you are concerned is good enough reason to act. If you are using a financial planner or advisor don't let them fob you off or tolerate them not taking your concerns seriously. If the advisor is recommending that no changes be made make them explain clearly why that is the case. Reasons like 'it may cost you money' or 'there's a lot of paper work' should be treated with suspicion.

If you are managing your investments yourself then be even more vigilant. It can be difficult to admit that you can't do something as well as other people but you have to see past that and be objective. My initial efforts in the share market were pretty ordinary and I realised I could 'make more money' by stopping my share trading activities and paying off my mortgage. While I did this, I took a long hard look at what I was doing and changed my approach. I am happy to say that my subsequent performance has improved but I still watch myself like a hawk.

Don't rush. There is simply no substitute for taking the time to build an effective investment strategy. It doesn't really matter how long you take as long as you are saving while you work on your financial plan and investment strategy. If you are saving or paying off debt you are making progress.