Recently, I shared a vision of the direction I was taking. And that was to build a minimum of $700,000 of capital producing assets in 10 years. Now, the first step towards achieving any substantial goal is to have a detailed plan on how the goal will be achieved. Every successful business has a business plan. So should you.
“You’ve got to be very careful if you don’t know where you’re going, because you might not get there. If you don’t know where you are going, you will wind up somewhere else.” – Yogi Berra
Every investor should have an Investment Policy Statement. Why? So you know where you are going. It acts as a reference point. A candle to guide you through the darkness. It’s a sacred creed that you developed through intensive thought, reflection, logic, and rationality; it guides you so you don’t stray from your path to success.
What’s ours? Here is the simple breakdown:
“Assets will always be available for liquidation anytime, anywhere.“
Liquidity is the iron rule. That means that we structure our investments so that they meet this requirement. It means that we consciously choose to avoid investments that have any type of strict lock in periods. This does not hinder us from stock investments.
“Our investment time horizon is forever.“
Our investment time horizon is forever. Stock investments will be approached with this timeline especially in mind.
“Minimum of 50% net income saved.“
We will strive to put away a minimum of 50% of our net income while we work in our current careers. Based on very conservative projections (5% average annual returns over 10 years), investing 50% of our net income for 10 years should get us to $700,000 in capital producing assets.
“Maximum 80% stocks.”
We will always hold a portion of our assets in cash/cash-equivalents. Both for peace of mind and for the unlikely chance a truly “home run” investment opportunity presents itself.
“Investments will be fully optimized for tax efficiency.”
Investments will be allocated to appropriate tax sheltered and non-tax sheltered accounts for efficiency and optimization. This means all US equities will reside in RRSP accounts. All foreign equities, REITs, and growth stock will reside in TFSA accounts. All Canadian equities and Canadian dividend stocks will reside in regular, non-tax sheltered accounts. All cash will be held in high interest savings accounts in non-tax sheltered accounts.
These 4 major points make up the foundation of our plan. It’s meant to provide us with a road map based on our values and beliefs without sacrificing flexibility. What’s in your Investment Policy Statement?
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