3-D's of Investing

3-D investing may be almost as cool as 3-D movies. Dont believe us? Talk to us once youre resting comfortably in retirement without a care in the world. 3-D investing is a way of structuring your investments to balance risk vs reward and to skillfully ride the ups and downs that the market can throw at you. This method of investing promotes systematic decision making that will allow your portfolio to thrive.

Data-Driven Process: Weve demystified data-driven process in a previous blo

g, but one simply wasnt enough to stress the importance. To the average investor, a data driven process means your financial advisor is using historical data to decide where and how to allocate your funds into investments. Your level of risk will also determine how your financial advisor uses the markets fiscal history to determine which investments best suit your goals and type of portfolio. A skilled financial advisor can create a portfolio to suit a variety of risk levels utilizing a data-driven process.

Unfortunately, not all data-driven processes are created equal. Typically, less than 50 percent of portfolio managers match or outperform their benchmarks over 3-year and 5-year periods (Standard & Poors Indices Versus Active Funds Scorecard, August 2011). MyRetirementPlan has found success putting more emphasis on three-year data versus five-year or 10-year data. Three-year data falls within the typical five-year business cycle, and the best investments typically will change within that five-year cycle. It is imperative to have a financial advisor that uses a systematic data-driven process. Human judgment is fallible, it can view data and come to different decisions. Machines that use metrics to derive their analysis of data will always come to the same decision, thus giving an edge to financial analytics for determining investments.

Diversification: Diversification of your assets is another extremely important part of systematic investing. If you put all your eggs in one basket, you could end up with a pretty big mess if something goes wrong. If you put all your investments in one area, you set yourself up for unnecessary risk. Too much risk means the potential for too great of a loss. Diversification helps ease this risk and open up more opportunities for reward, as the primary objective of diversification is to manage your risk by spreading your investments around. The market is infamous for being unstable and unpredictable. Diversification attem

pts to eliminate the extreme ups and downs of that risk causing you a considerable loss. For more information on how diversification can help you, MyRetirementPlan has blogs to aid you in diversifying your portfolio and determining optimal allocation.

Discipline: Stick to your plan! Discipline may be the easiest of the 3-Ds to explain, but its usually the most difficult aspect to follow. In order to have successful investments, you must have the discipline to stick to the plan and listen to your financial advisor. Much like a marriage, in good times and in bad, you follow your plan. The stock market is a volatile place, its easy to get spooked by downward turns and over eager when things are good. Stay impartial and dont make drastic changes due to emotional judgment calls. Systematic investing calls for impartial and unemotional investing plans that require discipline to follow through.

3-D investing is an incredibly beneficial way to begin your investing journey. A skilled financial advisor can help in the difficult realms of finding a data-driven process that is proven to succeed and the appropriate diversification for your individual needs. All you need to bring to the table is the discipline to follow their well-laid plan. A systematic approach, like the 3-D approach is a tried and true method to investing. Talk to MyRetirementPlan today and see how we can make your investment dreams a reality.