Can You Put Your Investment Plan On A Note Card?

Does investing seem complicated? Despite the presence of overly complicated financial strategies and the often vexing financial jargon used by financial professionals, investing does not have to be so complex.Investing is simply a balancing act where the challenge is to find the ideal balance between risk and reward.

To generate the returns needed to meet long-term goals such as retirement, it’s generally necessary to take some risks along the way. The major asset classes that are a part of most investment portfolio decisions include stocks, bonds, real estate, and cash. Asset allocation (you know the whole “don’t put all of your eggs in one basket” concept) refers to the process of choosing how much of these asset classes to hold in a diversified portfolio to fit your personal situation.

When it comes to investing, there is another critical balancing act taking place that is just as challenging as the risk/reward decisions we must make – balancing our time. I have worked with so many people over the past few years who admit they have very little time, energy, or desire to manage their investment portfolios. Some even acknowledge that their lack of investment knowledge and lack of confidence in their own abilities to navigate these important asset allocation decisions has led to confusion as to where to go to get started in the first place. A little simplicity can go a long way to help filter out the noise and distractions that can stand in the way of our financial life plans. That is why I encourage others to simplify their investment plans and this important balancing act can be as simple as writing down your goals on a note card.

Last week, I came across a blog post from Christine Benz at Morningstar and she shared the idea of condensing your investment plans onto a simple 4 x 6 index card. Why Your Investment Strategy Should Fit on an Index Card explores the benefits of cutting through the clutter and creating an investment plan that is simple and easy to maintain. I think this note card approach is the perfect way to communicate an investment plan in simple terms once you have found the right balance of investments in your portfolio. Even if you are a hands-off investor comfortable sticking with target date funds in your retirement plan or using professional money management services, it is wise to communicate the basics of why you have chosen that strategy. It is also a great strategy to help block out all of the noise and confusion related to global investments and focus on the things you have some control over.

The Note Card Challenge

In the spirit of simplicity, I have taken the note card challenge and committed to put my own investment plan in writing. I am in the accumulation stage for retirement and also have a fairly high tolerance for the ups and downs of the stock market. Anyone closer to the transition stage into retirement years where income becomes a greater focus should adapt their note card plan for those objectives. The main idea is to be able to communicate your investment plan in a simple manner that others will understand. Here is an example of my personal “note card investment plan:”

Goal: Invest for long-term growth to reach financial freedom/retirement in 20 years (risk tolerance = aggressive)

  • Use low cost, no-load mutual funds and ETFs in tax-smart accounts (401k, Roth IRA, SEP IRA, HSA)
  • Contribute 20% of income (25% goal by 2016)
  • Maintain at least 90% asset allocation in U.S. and international stock funds (other 10% is REITs and alternative investments)
  • Monitor account every 3 months
  • Re-balance once per year or if asset mix is +/- 10% original target

This is just my personal investment plan in a stripped down summary and I am obviously comfortable with a more aggressive risk tolerance (translation: find your own personal asset allocation mix that you are comfortable with). The main purpose of this exercise is to be able to communicate why you are investing in the first place, how you will be investing, and when you will be reviewing your accounts and re-balancing your portfolio. The next step for more hands-on investors is to create an Investment Policy Statement (see Is your Investment Portfolio Missing a Key Ingredient?).

If you like the concept of simplicity in your life and want to take the next step after the note card approach to investment planning, consider creating a one-page financial plan. In next week’s blog post, I will review the simple wisdom found in Carl Richard’s book The One-Page Financial Plan: A Simple Way to Be Smart About Your Money. In the meantime, try to condense your investment plan into one 4 x 6 inch note card so you can leverage your time to focus on things that matter the most in your life.



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