Planning ahead

Planning ahead

Humans seem to focus on their immediate surroundings and the very near future. We also have a tendency to believe that things will always be the same and to be surprised when they change without warning.

This is probably evolutionary – these are things that might be advantageous in a jungle full of predators – but neither trait is helpful in investing. Here, time is on your side, and you must expect constant change.

I’m not personally the worst example of short-term thinking or anchoring, but I do have a tendency to procrastinate. The solution to all three is the same – planning ahead. Sticking to a plan brings the far-off into the immediate and what  would be done tomorrow into today. We can also test out our plan against a range of future conditions.

Investment planning, like all other planning, begins at the end. We have a goal, an end-state we wish to achieve, and we need to work out the simplest (cheapest, least risky) way to make it.

For the purposes of this blog, the goal is financial independence  (FI) – a defined level of permanent income from a given retirement age. We have already covered the range of target incomes and ages that we will be discussing.

We now need to work out how much we need to invest each year to meet our goals, and what kind of things we need to invest in. Over the course of the next few posts in this category we will come up with detailed action plans for investors of all ages across our range of target income levels.

The next step will be to do the maths on the required level of contributions.

Mike is the owner of 7 Circles, and a private investor living in London. He has been managing his own money for 39 years, with some success.

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Planning ahead

by Mike Rawson time to read: 1 min