CONTEXTO DE LA APLICACIÓN DEL PROGRAMA.

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Investing is a lot like running a marathon. Just as you don’t wake up one morning and decide to run 26.2 miles on a whim, you shouldn’t invest without preparing for the challenge. In both cases, failing to adequately train for your goal could lead to major injuries. The difference is, your body may only need weeks to heel from a pulled muscle or strained back. It could take years, if not decades, to overcome investment errors you make in your portfolio.

Still, it’s a useful exercise to embrace this analogy. Running a race of this length takes months of training to build the necessary endurance. It requires a strategy that factors in the length of the course, the nature of the path, and an assessment of external forces like the weather or even one’s own health. And it takes a commitment to stay the course, no matter how painful this exercise may be.

Investing, which is also a lengthy journey, requires similar steps. Your challenges include the following:

To set aside enough time to plan your financial future. Studies have shown, for instance, that people spend far more time planning family vacations than they do planning their financial futures. In fact, one well- known study of workers and retirees found that three-quarters of

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Americans spend about four hours or more planning for upcoming holidays. Less than half, however, spend as much time in a given year planning for retirement. Yet family vacations last for a few short days. Your future, as we discussed in the previous chapter, could entail 30, 40, or even more years of living. So spend at least two or three months studying up on the various investment options—and deciding which ones are right for you.

To set aside enough time to analyze and reassess your investment decisions at least once every quarter. Chances are, you won’t have to do anything to your investment portfolio every three months. But at the very least, you should monitor your progress. You should also consider any changes that have taken place in your life that may require altering your investment strategy as time goes forward. (For example, if you recently got married or divorced, had a child, or discovered that your child is bound for Harvard, you may need to factor those things into your overall plan.) Yet studies show that a majority of investors rarely make any adjustments to their investment portfolios. In fact, only about one in six retirement investors make any changes to their 401(k) in a given year. That’s not being an investor. That’s being a bystander.

To become familiar enough with your investment options to make wise and informed decisions. Or, conversely, to recognize that you don’t have the time or desire to tend to such matters and need the help of a professional advisor.

To figure out what type of investor you plan to be. (We’ll discuss this at length in the following chapter.) For example, what is your investment philosophy? Do you plan to invest for the long term, or will you con- centrate mostly on meeting short-term needs?

To figure out what types of investments to own (for instance, stocks, bonds, or real estate) and how much of each.It’s not good enough simply to

decide to invest in stocks and bonds. Figuring out the right mix of stocks and bonds and other assets—which investment experts refer to as an asset allocation strategy—is critical. The list in Figure 2-1, which follows, will give you some idea of the return on certain investments (including the negative return credit card interest rates represent).

Two portfolios that consist of the exact same investment choices, for example, can deliver wildly different results, depending on what percentage of your money you put into each. For instance, had you put 80 percent of your money in U.S. stocks and 20 percent in U.S. bonds in 1999, you’d have earned an impressive 18.9 percent on your money. Had you flipped the mix and put 80 percent in bonds and 20 percent in stocks, you’d have earned only 4.2 percent that year. However, had you been

80 percent bonds and 20 percent stocks, you’d have done far better in 2002, when this mix of investments produced average gains of

around 2.4 percent, versus a 15 percentlossfor portfolios that were heavily weighted toward stocks. So you can see, your asset mix can often have more of an impact on your portfolio than what your investments are.

To figure out how to choose individual securities that will go into your portfolio. For example, should you invest in shares of Microsoft or General Electric? Is a 10-year Treasury security better than a municipal bond put out by the state of California? Another challenge is to figure out how much money to invest in each of your securities once you’ve selected them.

To figure out what type of account you will use to invest in these securities. In other words, should you invest in stocks through your tax-deferred 401(k) account, or should you use that account to invest in bonds?