To many investors, making money in the markets is about getting the latest forecast on a promising company, and then buying the stock before everyone else gets the memo.

If only.

In reality, that buy order you put in for your XYZ stock should have been a final decision, not an initial one, so before plunking down your hard earned cash on some flight of fancy, there are a number of steps you should take before you decide if it’s a flight you want to board, or if you should wait in the terminal for the next departure to a more desirable destination.

Keep in mind that the following steps are comprised of many smaller considerations and decisions.


Who doesn’t love a nice, workshop-tolerable, highly-marketable eighties business-book word? Paradigm proliferated during the eighties-era business meetings, memos, and conversations, largely replacing old school words like standard, model, pattern, theory, belief or concept. It nearly killed “philosophy.”

Many C-level executives got to the top floor simply by adding the word “shift” after paradigm. “Paradigm shift” were the two most used opening words of training workshops in the 1980s. But I’m not above appropriating eighties culture when it suits me.

As it applies to your personal approach to investing, your Personal Investing Paradigm, PIP, if you will, should form the center of your personal finance universe. Your PIP may be built around a passion to day trade or building a laddered portfolio of income-producing instruments to take you through retirement. 

If your paradigm, and subsequent shifts, should ideally align with your overall financial planning objectives (retirement, college, and so forth) and may sound something like this:

  • Construct a Strategic Asset Allocation goals-based model to reduce portfolio risk, achieve proper diversification, and improve long-term return consistency.
  • Calculate your required risk-adjusted rate of return.
  • Identify financial instruments that address the risk and return parameters you established.
  • Resist attempting to beat the market, because you won’t. 

Bottom line, my PIP guides me to calculate what I need from returns over the long haul as I accumulate assets that will help me attain my objectives, keep risk management at the forefront, and have all investment decisions comply with the parameters outlined in my financial plan.

2-Put it in writing. Establish your SMART GOALS 

Goal setting, in its broadest context, means that your investing is about achieving your financial goals.

Your primary goal is not to “make money.” Your primary goal is to “live well in retirement.” Huge difference.

Investing is a means to an end, not the end itself, so it stands to reason that the first step in making a decision about a given investment is to ask yourself, “does this investment fit my overall plan to attain my long-term financial goals?”

Most investors have many financial goals concurrently: retirement, children’s higher education, taking care of aging parents, having enough to start a small business, and many more. 

SMART goals are Specific, Measurable, Attainable, Relevant and Timely. Back to the eighties! [1]

“I want to be a millionaire!” is not a goal; it’s a game show.

“I want to accumulate one million dollars by 2044 by investing $14,000 a year in a globally diversified risk-managed portfolio of equity, fixed income and alternative exchange traded funds, and earn 8% annually.”

Now that is a SMART goal!


There are many metaphors for financial planning, from road maps to ladders to rocket ships and cruise ships. Road map seems to get a lot of use because of the journey aspect, but I prefer Blueprints, because it connotes building something that will endure, based on a carefully conceived and constructed project.

Blueprinting your financial wellness consists of reducing your most important goals to writing, and then making decisions exclusively within a framework of interrelated control documents, your blueprints, such as your budget, your financial plan, and your investment policy statement.

The Documented Life of a Passionate Wealth Builder.

Each of these documents serves a specific critical function and allows you to make informed, unemotional financial decisions. Your blueprints collectively memorialize your goals and encompass the directives of your overall financial plan, and as you may already know, plans aren’t real until you write them down.

4-Develop a goals-based ASSET ALLOCATION

Asset allocation, a critical step in its own right, comes after you’ve defined and established your personal financial goals. Building an allocation model may be the most important single investment decision you make. Establishing a defined asset allocation model helps you balance risk and reward in your portfolio by forcing you to consider how closely a given investment matches your ability to realize your goal, satisfy your tolerance for risk, evaluate the tax implications and fits your investment time horizon.

Broad asset classes (stocks, bonds, cash, real estate, etc.) are not entirely correlated, that is, at any given time they move in different, and often entirely different directions, and by diversifying portfolios across different asset classes you may help to optimize the portfolio’s risk-adjusted returns.

…asset allocation accounts for 93.6% of the variation in a portfolio’s quarterly returns…

The now famous academic study titled Determinants of Portfolio Performance* published in the Financial Analysts Journal in 1986, has become the benchmark to explain the importance of asset allocation.

The seminal Brinson, Hood and Beebower (BHB) study asserts asset allocation is the leading determinant of a portfolio’s risk and return variability, with individual security selection and market timing (that is, active management) playing bit parts. BHB concluded that asset allocation accounts for 93.6% of the variation in a portfolio’s quarterly returns.

Brinson, Hood, and Brian D. Singer updated the original BHB study and found a return variance of 91.5% in a different time period, 1977 through 1987. The theory still held: the preponderance of risk and return variability is explained by asset allocation. Monitoring and Rebalancing your initial allocation model is a critical activity.

As part of an effective asset allocation model, before moving on to choose asset classes and specific investments, an investor must consider many issues, including risk assessment and establishing time horizons for each goal.

Risk assessment is rarely considered when the markets are hot and expectations are high. The prevailing psychology becomes “Fear of Missing Out” (FOMO).

Certainly, the prevailing winds are powerful, and it’s quite easy to get swept up in the current madness of crowds, and eventually blown away in the inevitable downturn. The risk in a given situation is often overlooked in a FOMO period because crowd madness is focused only on money making. (Can you say “bubble”?)

Doing risk assessment simply means understanding what you may be getting yourself into, but it doesn’t mean you need to sidestep every risk. You couldn’t if you tried.

To the contrary, risk is something to be embraced. Prices change by the second, and is that very volatility that allows us the opportunity to make money in the long run. Our job as long-term investors is to acknowledge risk is everywhere and is in everything, so we must determine which risks fit our outlook and plan objectives, and act accordingly.

…before plunking down your hard earned cash on some flight of fancy, there are a number of steps you should take before you decide if it’s a flight you want to board…

Time can be a friend or a foe. How long will you own this thing once you buy it? Time is a critically important factor in successful investing. Time affects risk, returns and even taxation. Disciplined investors looking to build long term wealth, think in years, not market sessions.

If you are looking to buy a security and only hold it until it hits a price target does not mean you are a trader, per se. There is nothing inherently wrong with setting a price target and selling when its reached, if you know what you’re doing, and its part of a larger overall plan. In fact, its smart. Taking the profits and plowing them back into a security with similar risk-return profile makes sense, and takes discipline.

Speculators play an important role in the markets, and speculation has its place in the financial universe, it’s just not a good look for most investors saving for retirement, and the older we get the truer this becomes.


Stocks, bonds, cash, real estate, alternatives. All are separate asset classes that have specific and unique characteristics. Correlation is the important concept here. The fact that a given asset class will generally move differently than other asset classes is what makes asset allocation a vital tool. Investors often ask the the question, “Which asset class should I own?” The better question is,  “How much of each asset class should I own?” 

Committing to own a representative amount of each asset class at all times, in all market cycles, based on your personal risk tolerance and goals, underscores the value of asset allocation. You never have to be “right” in your selection or timing, as each of these active elements plays an important role in bottom line outcomes.

…you never have to be “right” in your selection or timing…

Choosing sub-asset classes is where it gets really interesting.

Stock can be domestic or foreign, large medium or small capitalization. Bonds can be short or long, high quality or junk, corporate or government.

For many investors, a smarter alternative to buying single-issue securities is buying entire pieces of the financial markets through non-managed, diversified index funds or Exchange Traded Funds (ETF).  With thousands of index funds and ETFs in the market, representing nearly $4 trillion in total assets, you will not be at a loss for choices that are appropriate for your plan.

If you were employing a core-satellite approach, the core of your growth portfolio may likely be a large domestic stock ETF or fund representing the S&P 500 or Russell 1000 perhaps, with smaller allocations going to small and mid-cap stocks, bonds, real estate and alternative classes like commodities.

Optimized allocation models are available in ready-to-go managed asset accounts, or you can assemble your own. There is no one right answer for everybody, so research, research, research.


For most investors, passive investing is simply a superior way to invest. Passive investing allows you to be the market, and you will never earn less than the market.

In a world of uncertainty, you are unlikely to encounter any “nevers” as good as this one. Today’s passive investors enjoy the opportunity to create customized and easy to manage portfolios with low cost, diversified exchange traded funds; portfolios that range from simple to complex, and may include everything from the most common of common stocks to sector plays as narrow as marijuana and cryptocurrency (Note: that was not an endorsement for either marijuana or cryptocurrency.)

7-Pay close attention to ASSET LOCATION AND TAXATION

This is one that nearly all investors miss. Almost always.

Where you put it counts.

Asset Location is a tax reducing strategy that can create tax alpha, since not all investments are taxed the same way especially when they are optimally located. Optimal location simply means the most tax-friendly location. For instance, while assets held in an IRA will eventually be taxed at ordinary income tax rates, assets in a ROTH will be tax free at their distribution.

Tax-deferral is good. Tax free is better.

(Read Location, location, location! for more detail).


No, you’re not going to launder your money or shampoo your portfolio, but you are going to monitor your portfolio consistently and repeat this entire process often.

Whether you’re starting from scratch or you’ve been following these steps for years, you should work through these steps for three principal reasons:

1) Checking on the progress of your SMART goals or adding a new goal is a continuous process,

2) Periodic rebalancing of your portfolio is required to make the concept of asset allocation work, and

3) Adding new investments to your portfolio.

Okay, you did your homework. You built your blueprint, worked through the steps, set reasonable and attainable time-based planning goals, established a strong allocation foundation, considered the risks that you are willing or not willing to accept, considered the right type of tax-friendly accounts to use, and now you’re ready to build.

You now have two choices: 1-Do it yourself, or 2-Locate an experienced architect that knows how to build a structure fo the ages. When in doubt, speak to your friendly Certified Financial Planner professional.

[1] The SMART acronym was first published in a paper titled “There’s a S.M.A.R.T. Way to Write Management’s Goals and Objectives” in November 1981 in Spokane, Washington. by George T. Doran, a corporate consultant.