3. Plan your new Upgrading portfolio. The instructions in SMI will walk you through how to allocate your portfolio between the various asset classes as well as which fund(s) to buy in each class. The result will be a broadly diversified portfolio tailored to your age and risk tolerance.
4. Invest according to your plan. After the money has been transferred, call Waterhouse (or use their Web site) and instruct them to move money out of your new money market account into the various funds you selected in step three.
5. Keep on investing according to your plan. Eventually, some of your funds will falter in their performance. You'll receive your newest issue of SMI and see the news ? one of your funds is being removed from the recommended list and another is taking its place. It's time to sell the old fund and buy a new one from the recommended list. Don't hesitate. Don't delay. More often than not, you'll be better off if you ignore any applicable redemption fees, transaction fees, or tax consequences. As Nike says, "Just do it!"
Steps one through four were fairly straight forward, and should not have posed any major problems. Oh sure, steps two and three involve some subjectivity. It would be nice if there were absolute rules which you could follow and be guaranteed to arrive at the most profitable outcome. But we're all subject to the same uncertainties when it comes to future market behavior, so just do the best you can. The important thing is that you have used the information at hand to come up with a reasonable plan with which you're comfortable.
Step five is where some people have trouble. Their strategy is in place, but they get distracted by news headlines and recent market behavior. Perhaps they read that small company stocks will be hurt more if the economy slows, and begin to second-guess their plan to invest a portion of their portfolio in small-caps. Or they see an interview with a money manager who doesn't believe it will pay to invest outside the U.S. this coming year, so they begin wondering about buying that international stock fund. At this point, it's important they "make decisions of reason, not decisions of emotion." It's their fear that's sidetracking them. There will always be the possibility of loss. There will always be reasons to wait.
So, what do you do at the crticial decision points? You get out your plan and read it. And you do what it calls for, what you planned to do. You have to learn to proceed with your plan despite your fears. Your plan, if it's a good one, will minimize your risk of loss through adequate diversification and a long-term time horizon. This is where having your plan written out, along with your notes as to why you created your plan as you did, can be a help. Keep it handy as a reminder. Refer to it whenever a decision is required. You've planned according to your goals. Now invest according to your plan.
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