Letter to My Daughters: On Making Investment Decisions
I’ve written to you about Passive Investing and Financial Freedom, and now I want to give you some tangible things you can do to realize that dream of Financial Freedom. The process is to:
- List what you are trying to do and assign dates and dollars (if possible) to those goals. Here’s a link to an example of how that looks.
- Create a balance sheet and an income statement. The balance sheet is a list of what you own and what you owe. The income statement lists what you make, what you spend, and what you save. Here’s a link to a sample Balance Sheet built in Microsoft Excel. The sample workbook will download when you click the link.
- Determine what you have to do today to reach the future goals you set in Step 1. Consider investment returns, spending, saving, etc., to get an idea of how your money behaves over time, and what you have to do today to make it behave the way you want.
- Create a “Statement of Investment Policy” for yourself to guide how you invest or to evaluate who you hire to invest your money.
I hope this isn’t too daunting. It seems like a lot just typing it out, but I have created some tools that you can use for each step. Just let me know if you would like a copy of the spreadsheets, and to talk about how I use them. By the time you are done, you will have 4 sheets of paper that you can use now and in the future to check your progress. Each year, you:
- Review the sheets and
- Ask if anything has changed and if you are on track.
If the answer to #1 is no and #2 is yes, put the sheets away and keep on keeping on. If the answer to #1 is yes and #2 is no, well, at least now you know in time to adapt accordingly.
Let me know how I can help.
Love you,
Dad
The opinions expressed are those of Muhlenkamp and Company and are not intended to forecast future events, guarantee future results, or offer investment advice.
