PRISM: Prioritizing Your Goals

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Selecting and Managing Your Investments - Lesson 14

  • 1.  Selecting and Managing Your Investments - Lesson 14

    Posted 04-21-2022 16:41


    The Importance of Writing Down Your Buy/Sell Rules     

    Reflect 

    When it comes to investing, discipline often matters more than skill or knowledge, especially when It comes to sticking to a well-thought-out plan. This is because disciplined approaches are systematic, repeatable and limit the role of emotions during market volatility. 

    At AAII, we use written buy and sell rules for all our model portfolios. One of the main reasons AAII's Model Portfolios have outperformed over the long term is the adherence to written buy and sell rules.  

    Writing down your buy and sell rules offers three additional benefits:  

    • Provide an investor with much needed clarity about when you should act and when you shouldn't  
    • Reminds investors of the key aspects you need to look at before determining whether an investment is a buy or a sell 
    • Allows individual investors to avoid the behavior gap, which refers to the difference between the performance of an investment and the actual return investors realize from it. 

    In fact, a 2021 Morningstar study found investors realized annual returns that were 1.7 percentage-points less than the very funds they invest in because of their buy and selling decisions. You can see why we stress the importance of having a set of written rules which inherently helps you avoid making the same mistakes time and time again. 

    Participate 

    For this lesson, we ask our members to share three takeaways they've learned from this section of the PRISM Academy. 

    1. What did you learn from going through how to narrow down the list of stocks, bonds or funds that go into your portfolio based on preferences? 
    2. What AAII resources do you plan to use to choose what stocks, funds, bonds or cash-like instruments go into your portfolio? 
    3. What was one buy/sell rule you didn't have but now will use after reviewing the guidelines we shared? 

        Now, we want to hear about your findings. Let us know in the comments below! 

        Download the "Selecting and Managing Your Investments" worksheet 

        Questions about coursework, webinars, worksheets, etc.? Drop your inquiries in the discussion below. We're happy to help! 



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        Jenna Brashear
        AAII Community Manager
        Chicago, IL
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