Don’t have an investment plan? Start here

Paul Merriman’s recent paper tells how easy it is to start investing. He gives 10 basic principles for successful investing. The principles are not overwhelming, complex, or difficult. Instead it is a plan anyone can understand use.

Lets look at the first five:

1. Have a plan. Even if it’s simple, even if it’s imperfect, having a plan is much better than simply following your whims and emotions. Put your plan in writing and keep it handy.

Why in writing? It keeps the emotions at bay. Your plan should be systematic and logical.

2. Start investing as soon as possible. We have said it repeatedly: Time is your best ally. Give your plan time to perform and you’ll get the benefit of compound interest. This is especially effective in tax-deferred accounts.

If only we started putting 10% away every year since getting out of school…

3. Diversify your investments. Your job and your home are both dependent on your local economy. If you invest in your company’s stock as well, you may be putting too many proverbial eggs in one proverbial basket. Diversify asset classes (stocks, bonds, cash) and diversify geographically by having some of your money invested internationally.

Do you hear the words “Index Fund”?

4. Invest regularly. Investing is a process, not a onetime event. If you make investing a habit and routinely “pay yourself first” from your income, you’ll maximize your chance for success. Best: Set up an automatic savings plan at work so you don’t even see the money before it is invested for you.

If you are not your most important asset then why are you working?

5. Maintain a long-term perspective. Microsoft Chairman Bill Gates, now the richest man alive, once said he only looked at the price of Microsoft stock about once a month. Gates knows a secret that too many investors ignore: Focus on long-term results, not what’s immediately in front of you.

Stocks go up, stocks go down, invest for the long term and not for the new hot fad.

Go read the rest of his 10 principles.