When my daughter was in the first grade I had the honor of coaching her soccer team. Our team name was the Mustangs. These little Mustangs consisted of a band of young ladies, most of whom were playing an organized sport for the first time in their lives. Our league did not keep score as the main goal was to introduce the girls to the world of soccer. Before our first game one of the girls on the team said to me, “if we don’t keep score, we can’t win.” She was right. If we don’t keep score, we can’t win.
Most investors don’t keep score. An investor who doesn’t keep score does not know if they are winning or losing the investment game. In addition to not keeping score, most investors don’t know what game they are playing or what road they are travelling on. As the Cheshire cat said to Alice in Alice in Wonderland, if you don’t know where you are going, then it doesn’t matter what road you take.
How can you win? How do you know if you are winning or losing the investment game? How do you know if you are on the right road? Here are a few ways that can help you keep score –
1. Financial Plan. A well designed financial plan can help you keep score and guide you towards your financial goals.
2. Investment Policy Statement. The IPS will put a spotlight on your investment holdings and how they will be managed. In addition, your IPS should also highlight your fee schedule and how often your account will be reviewed.
3. Quarterly Reviews. The quarterly review is a quick check in to review the activity in the previous quarter.
4. Annual Review. The annual review is a deep dive into your financial plan and investment policy statement. When should you schedule your annual review? I would recommend scheduling these meetings around your birthday.
As a note, the girls kept score at each game.
Bill Parrott is the President and CEO of Parrott Wealth Management, LLC. www.parrottwealth.com