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The Perfect Plan for a Profitable Portfolio

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Through turbulent times, the most successful investors have a plan to follow. But if you don't have a solid investing plan, is it too late to make one? Are you doomed to poor performance?

Throughout the market downturn, you've seen lots of advice. You know you shouldn't panic. If you're investing for the long term, don't dump all your stocks at the lows. The assumption we've made all along is that you initially chose your investments as part of an investing plan -- one you were happy with, at least until the bottom fell out of the entire stock market.

Needless to say, not everyone had a plan like that. But luckily, even if you're in a tough spot without a good plan, you can still put one together that will help you for the rest of your investing career.

The danger of rosy times
When times are good, it's easy to cobble together a group of stocks without any coherent investing plan at all. Too often, investors buy stocks they read about somewhere -- typically after their best days are behind them.

Consider, for instance: how many people had heard of previous hot performers PotashCorp (NYSE: POT  ) and Mosaic (NYSE: MOS  ) before their shares took off? In our Motley Fool CAPS community, both Potash and Mosaic had low 2-star ratings in early 2007, even after both had almost doubled in the previous year.

They proceeded to go up even more -- a lot more. But plenty of investors found out about them only after most of the run-up was over. Lacking a plan, many held onto shares in recent months -- and saw their shares plummet.

The drive to succeed
Experiences like these can give you the resolve not to make the same mistake twice. In this month's issue of our Rule Your Retirement newsletter -- which hits the digital newsstand today at 4 p.m. ET -- Foolish expert Robert Brokamp highlights a number of stories about how subscribers took their first steps toward getting their retirement savings under control.

The reasons vary as widely as the people involved. For some, the pressure of what the future will bring motivates them to come up with a plan to deal with it. Others are thrust into action in response to some tragedy -- whether it's the current financial crisis, or something more personal. Still others come with a genuine belief that investing will help them reach their goals -- but lack the tools to implement a good investing strategy.

It doesn't matter what gets you to go forward with a plan -- as long as you do it.

Make a plan
So what's the perfect plan look like? Great investing plans have three things in common:

  • They're flexible. Try as you may, you simply can't predict everything that will happen in your financial life. Just like a diet that doesn't let you eat a single snack is doomed to failure, a great financial plan accounts for the inevitable pitfalls -- with tools like emergency funds and other contingency plans.
  • They're simple. You don't have to read company annual reports every day or find the next Microsoft (Nasdaq: MSFT  ) or Wal-Mart (NYSE: WMT  ) in order to have a successful plan. Quite the contrary -- great plans can start as easily as making regular contributions to an index fund, while letting you add other investments as your comfort level with investing increases.
  • They're panic-proof. No, I'm not saying you have to come up with a way never to lose any money. But what you do need is a strategy you can live with -- whether it involves conservative investments, like dividend payer Kimberly Clark (NYSE: KMB  ) , that help you control your risk, or aggressive stocks like Yingli Green Energy (NYSE: YGE  ) or Lundin Mining (NYSE: LMC  ) , which can magnify your potential returns.

So here's one possible plan: Save as much as you can afford from your earnings. Keep enough money to cover your short-term needs in safe investments like cash and bank CDs. With the rest, invest for the long term in a variety of promising stocks or mutual funds that match up with your risk tolerance.

That may sound like a reasonable framework, but how do you fill in the blanks? While there's no good one-size-fits-all financial plan -- it has to be tailored to your own situation -- the folks at Rule Your Retirement have come up with a number of ways to flesh out your plan, along with practical steps to implement it.

Although it's a subscription-based service, you can get a free look at Rule Your Retirement right now, with no obligation. It's our way of showing that we believe making a plan is the most important thing you can do -- especially now.

Learn more about investing in interesting times:

Fool contributor Dan Caplinger has found his plan helped him greatly during the panic. He doesn't own shares of the companies mentioned in this article. Kimberly Clark is a Motley Fool Income Investor selection. Wal-Mart Stores and Microsoft are Motley Fool Inside Value recommendations. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy is as perfect as they come.


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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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Related Tickers

10/22/2014 4:00 PM
KMB $112.65 Up +1.42 +1.28%
Kimberly-Clark CAPS Rating: ****
LMC.DL2 $0.00 Down +0.00 +0.00%
Lundin Mining Corp… CAPS Rating: *****
MOS $42.81 Up +0.18 +0.42%
The Mosaic Company CAPS Rating: ****
MSFT $44.38 Down -0.50 -1.11%
Microsoft CAPS Rating: ***
POT $32.78 Down -0.11 -0.33%
PotashCorp CAPS Rating: ****
WMT $76.03 Up +0.01 +0.01%
Wal-Mart Stores CAPS Rating: ***
YGE $2.83 Down -0.20 -6.60%
Yingli Green Energ… CAPS Rating: **

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