Monday, January 15, 2007

Integrating your Trading Plan into a Financial Plan

Since the U.S. markets today are closed, I thought I would discuss the next portion of my financial plan. A lot of people I talk to waste a lot of energy investing in things without an overall goal. They mistakenly believe that investing is all about knowing something about this stock going up or flipping single family homes. And certainly this is one aspect of investing; however, it is not the entirety.

Investing is nothing more than utilizing a combination of investment vehicles (i.e. stocks, bonds, real estate etc.) to achieve a financial goal. Without a financial goal it is difficult to discern what investment vehicle and time horizon are best. After all we travel from Los Angeles to Chicago by bus for about $150 and it will take about 3 days. But if we need to be in Chicago tonight, we should take a flight which may cost more say about $300. So how should you travel?

Secondly, beyond the investment vehicles themselves, we must also take into account the investment style. Are you a short term scalper who plays volatile stocks or a swing trader looking to capitalize on one to two week trends, or are you a long term investor looking for fundamental values of a particular stock? All of these styles could be investing in the same vehicles but the outcomes and methodologies may be completely different.There are advantages and disadvantages to each style.

This is the reason you need a financial plan. A financial plan is meant to guide you and your investments towards the life you want. After all, we are not necessarily looking to make X number of dollars or X % ROI on our investment per say. Money in the bank that cannot be spent is worthless. What we want is money enough to pursue the activities that we desire to engage in. Also, we are looking for money to free up the time that we would otherwise have to spend to earn it. Spend a few minutes if you get a chance and really consider what lifestyle you would like to live and what investment vehicles and methods it would take to achieve that lifestyle.

For myself, my day trading and swing trading activities on the eMinis and Forex are what I consider my business. I qualify this as a business activity because I have regular trading income and expenses and because I utilize more than 4 hours of my day toward this activity. Also, I plan to utilize the income of this activity to eventually fill out a larger portfolio for myself including passive income from both real estate and paper securities. It will be these passive income streams that will allow me to achieve my financial goal of retiring by the age of 35 (I’m 29 now).It’s an aggressive but detailed plan.If you haven’t already I encourage you to fill out your own plan for financial success. Doing so will take you one step closer. Save to

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